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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-5108
STATE STREET 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 2110
Boston, Massachusetts (Zip Code)
(Address of principal
executive office)
617-786-3000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
(Title of Class) (Name of each exchange on which registered)
- ---------------- -------------------------------------------
Common Stock, $1 par value Boston Stock Exchange
Preferred share purchase rights New York Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates (persons other than directors and executive officers) of the
registrant on February 28, 1998 was $9,799,573,000.
The number of shares of the Registrant's Common Stock outstanding on February
28, 1998 was 160,995,926.
Portions of the following documents are incorporated into the Parts of this
Report on Form 10-K indicated below:
(1) The Annual Report to Stockholders for the year ended December 31, 1997
(Parts I and II)
(2) The Registrant's definitive Proxy Statement dated March 10, 1998 (Part III)
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STATE STREET CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997
INDEX
PAGE
NUMBER
PART I
Item 1 Business.................................................... 1 - 14
Item 2 Properties.................................................. 15
Item 3 Legal Proceedings........................................... 15
Item 4 Submission of Matters to a Vote of Security Holders ........ 15
Item 4a Executive Officers of the Registrant........................ 16
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 17
Item 6 Selected Financial Data .................................... 17
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................ 17
Item 7a Quantitative and Qualitative Disclosure about Market
Risk ....................................................... 17
Item 8 Financial Statements and Supplementary Data ................ 17
Item 9 Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure ........................ 17
PART III
Item 10 Directors and Executive Officers of the Registrant.......... 18
Item 11 Executive Compensation ..................................... 18
Item 12 Security Ownership of Certain Beneficial Owners and
Management ................................................. 18
Item 13 Certain Relationships and Related Transactions ............. 18
PART IV
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K ........................................ 19 - 21
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PART I
ITEM 1. BUSINESS
The business of State Street Corporation and its subsidiaries is further
described in the "Financial Review" section of State Street Corporation's 1997
Annual Report to Stockholders, which section comprises Management's Discussion
and Analysis of Financial Condition and Results of Operation for the
Corporation; such description and information and analysis is included in
Exhibit 13 of this report and is incorporated by reference.
GENERAL DEVELOPMENT OF BUSINESS
State Street Corporation ("State Street" or the "Corporation"), formerly State
Street Boston Corporation, is a bank holding company organized under the laws of
the Commonwealth of Massachusetts and is a leading provider of services to
institutional investors worldwide.
State Street was organized in 1970 and conducts its business principally through
its subsidiary, State Street Bank and Trust Company ("State Street Bank," or the
"Bank"), and 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 a market leader in the businesses on which it focuses: services
for institutional investors and investment management with $3.9 trillion of
assets under custody and $390 billion of assets under management at year-end
1997. Customers include collective investment fund companies, corporations,
public pension funds, unions and non-profit organizations in and outside of the
United States. For information as to non-U.S. activities, refer to Note U to the
Notes to Consolidated Financial Statements which appear in State Street's 1997
Annual Report to Stockholders. Such information is incorporated by reference.
Services are provided from 29 offices in the United States, as well as from
offices in Austria, Australia, Belgium, Canada, Cayman Islands, Chile, Denmark,
France, Germany, Japan, Luxembourg, Netherland Antilles, New Zealand, People's
Republic of China, Singapore, Taiwan, the United Arab Emirates and the United
Kingdom. State Street's executive offices are located at 225 Franklin Street,
Boston, Massachusetts.
LINES OF BUSINESS
State Street reports three lines of business: Services for Institutional
Investors, Investment Management and Commercial Lending. In 1997, 64% of
operating profit came from services for institutional investors, 21% came from
commercial lending and 15% from investment management. For additional
information on State Street's lines of business, see pages 16 through 18 of
State Street's 1997 Annual Report to Stockholders, under the caption "Lines of
Business", which information is incorporated by reference.
Services for Institutional Investors. Services for institutional investors
include accounting, custody, daily pricing and information services for large
portfolios of investment assets. Customers include mutual funds and other
collective investment funds, corporate and public pension plans, corporations,
investment managers, non-profit organizations, unions, and other holders of
investment assets. Institutional investors are offered other State Street
services, including foreign exchange, cash management, securities lending, fund
administration, record keeping, credit services, and deposit and short-term
investment facilities. These services support institutional investors in
developing and executing their strategies, enhancing their returns, and
evaluating and managing risk.
With $1.7 trillion of mutual fund assets under custody, State Street is the
leading mutual fund custodian in the United States. State Street began providing
mutual fund services in 1924. Customers who sponsor the U.S. mutual funds that
State Street services include investment companies, broker/dealers, insurance
companies and others. In addition, State Street services offshore mutual funds
and collective investment funds in other countries.
State Street is distinct from other mutual fund service providers because
customers make extensive use of a number of related services in addition to
custody, including accounting and daily pricing. Additional services include
fund administration, accounting for multiple classes of shares, master/feeder
accounting, and services for offshore funds and for local funds in locations
outside the United States. Shareholder services are provided through an
affiliate, Boston Financial Data Services, Inc.
State Street began servicing pension assets in 1974, and now has $1.9 trillion
of pension and other assets under custody for U.S. customers. State Street is
ranked as the largest servicer of tax-exempt (pension) assets for both
corporations and public funds in the United States and is the largest global
custodian for U.S. pension assets. Services include portfolio accounting,
securities custody and other related services for retirement plans and other
financial assets of corporations, public funds, endowments and foundations.
State Street provides global and domestic custody and custody-related services
for $266 billion in assets for customers outside the United States.
State Street provides foreign exchange services to institutional investors
worldwide. These services include not only currency trading, but also currency
research, risk management and electronic execution services. State Street is a
securities lending agent providing lending and collateral management in 26
currencies as agent between institutional investors and broker/dealers
worldwide. State Street also provides repurchase agreements and deposit services
for the short-term cash needs associated with customers' investment activities.
Trading and arbitrage operations are conducted with government securities,
futures and options.
Investment Management. State Street was a pioneer in the development of domestic
and international index funds. The Bank's investment management arm, State
Street Global Advisors ("SSgA"), now offers an array of investment strategies,
including passive, enhanced, and active management using quantitative and
fundamental methods for both global equities and global fixed income. SSgA is a
leading trustee and money manager for individuals. At year-end 1997,
institutional and personal trust assets under management totaled $390 billion.
Additionally, SSgA provides record-keeping and other services attendant to its
investment management activities, including services for 2.4 million defined
contribution plan participants as of year-end 1997. SSgA has 22 offices
worldwide, including Boston, Hong Kong, London, Montreal, Paris, Sydney, and
Tokyo. SSgA is the fourth-largest money manager in the United States, the
second-largest manager of tax-exempt assets, and one of the five largest
managers of defined-contribution plan assets.
Commercial Lending. State Street provides loans and other banking services for
regional middle-market companies, for companies in selected industries
nationwide, and for broker/dealers. Other services include leveraged leasing and
international trade finance.
COMPETITION
State Street operates in a highly competitive environment in all areas of its
business on a worldwide basis, including services to institutional investors,
investment management and commercial lending. In addition to facing competition
from other deposit-taking institutions, State Street faces competition from
investment management firms, private trustees, insurance companies, mutual
funds, broker/dealers, investment banking firms, law firms, benefits
consultants, leasing companies, and business service companies. As State Street
expands globally, additional sources of competition are encountered.
State Street believes there are certain key competitive considerations in these
markets, including for investment asset servicing: price, quality of service,
efficiencies from scale and technological expertise, and quality and scope of
sales and marketing; for investment management: expertise, experience, and the
availability of related service offerings; and for commercial lending: price,
experience, and quality of marketing.
State Street's competitive success will primarily depend upon its ability to
continue to develop and market new and innovative services and to adopt or
develop new technologies that differentiate State Street services and that
provide cost efficiencies, and the ability of State Street to continue to expand
its relationships with existing and new customers.
EMPLOYEES
At December 31, 1997, State Street had 14,199 employees, of whom 13,798 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, which includes non-bank companies which it owns or controls more
than 5% of a class of voting shares, 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. The
Board may order a bank holding company to terminate any activity or its
ownership or control of a non-bank subsidiary if the Board finds that such
activity or ownership or control constitutes a serious risk to the financial
safety, soundness or stability of a subsidiary bank and is inconsistent with
sound banking principles or statutory purposes. 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 from 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 Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Act") generally permits bank holding companies to acquire banks
located in any state without regard as to whether the transaction is prohibited
under state law. In addition, it generally permits national and state chartered
banks to merge across state lines (and thereby create interstate branches)
commencing June 1, 1997. Under the provisions of the Interstate Act, states are
permitted to "opt out" of this latter interstate branching authority by taking
action prior to the commencement date. States may also "opt in" early (i.e.
prior to June 1, 1997) to the interstate merger provisions. Further, the
Interstate Act provides that states may act affirmatively to permit de novo
branching by banking institutions across state lines.
Bank holding companies, such as State Street, are subject to Federal Reserve
Board risk-based capital guidelines that require a minimum ratio of total
capital to risk-weighted assets (including certain off-balance-sheet items) of
8%. At least 50% of total capital must consist of common stockholders' equity,
minority interest, non-cumulative perpetual preferred stock, and a limited
amount of cumulative perpetual preferred stock, less disallowed intangibles and
other adjustments ("Tier 1 capital"). The remainder may consist of subordinated
debt, other preferred stock, certain other instruments and a limited amount of
loan loss reserves ("Tier 2 capital"). At December 31, 1997, State Street's
consolidated Tier 1 capital and total capital ratios were 13.7% and 13.8%
respectively.
In addition, bank holding companies are subject to Federal Reserve Board minimum
leverage ratio guidelines. These guidelines provide for a minimum ratio of Tier
1 capital to total average assets (the "leverage ratio") of 3% for bank holding
companies that meet certain specified criteria, including those having the
highest regulatory rating. All other bank holding companies generally are
required to maintain a leverage ratio of at least 3% plus an additional cushion
of 100 to 200 basis points. State Street's leverage ratio at December 31, 1997,
was 5.9%. The guidelines also provide that bank holding companies experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. The Federal Reserve Board has
indicated that it will also consider a "tangible Tier 1 capital leverage ratio"
(deducting all intangibles) and other indicia of capital strength in evaluating
proposals for expansion or new activities.
State Street Bank is subject to similar risk-based and leverage capital
requirements. State Street Bank was in compliance with the applicable minimum
capital requirements as of December 31, 1997. Neither State Street nor State
Street Bank has been advised of any specific minimum leverage ratio requirement
applicable to it.
Failure to meet capital requirements could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business, which are described below.
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
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.
Federal law also provides that certain transactions with affiliates must be on
terms and under circumstances, including credit standards that are substantially
the same, or at lease as favorable to the institution as those prevailing at the
time for comparable transactions involving other non-qualified companies or, in
the absence of comparable transactions, on terms and under circumstances,
including credit standards, that in good faith would be offered to, or would
apply to, nonaffiliated companies. The Board has jurisdiction to regulate the
terms of certain debt issues of bank holding companies.
State Street, State Street Bank and their affiliates are also subject to
restrictions with respect to issuing, floating and underwriting, or publicly
selling or distributing, securities in the United States. State Street and its
affiliates are able to underwrite and deal in specific categories of securities,
including U.S. government and certain agency, state, and municipal securities.
Under Federal Reserve Board policy, a bank holding company is required to act as
a source of financial and managerial strength to its subsidiary banks. Under
this policy, State Street is expected to commit resources to its subsidiary
banks in circumstances where it might not do so absent such policy. In the event
of a bank holding company's bankruptcy, any commitment by the bank holding
company to a Federal bank regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority payment.
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 are subject to supervision and examination
by various regulatory 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. Other
subsidiary banks are subject to supervision and examination by the Office of the
Comptroller of the Currency or by the appropriate state banking regulatory
authorities of the states in which they are located. State Street's non-U.S.
banking subsidiaries are also subject to regulation by the regulatory
authorities of the countries in which they are located. The capital of each of
these banking subsidiaries is in excess of the minimum legal capital
requirements as set by those authorities.
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. As a result
of FIRREA, State Street Bank and any or all of its subsidiaries can be held
liable for any loss incurred by, or reasonably expected to be incurred by, the
FDIC after August 9, 1989, in connection with (a) the default of State Street
Bank or any other subsidiary bank or (b) any assistance provided by the FDIC to
State Street Bank or any other subsidiary bank in danger of default. 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 re-capitalize the Bank Insurance Fund and
strengthen the regulation and supervision of financial institutions.
Pursuant to the FDICIA each Federal banking agency has adopted 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 regulations establish the numerical limits for five
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 or 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 Bank's capital ratios were within the "well-capitalized"
category at December 31, 1997. For further information as to the Corporation's
capital position and capital adequacy, refer to the Liquidity and Capital
Resources portion of the Financial Review section and to Note K to the Notes to
Consolidated Financial Statements which appear in State Street's 1997 Annual
Report to Stockholders. Such information is incorporated by reference.
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 25% of total capital exposure to "undercapitalized"
banks.
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 accepted 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 have 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 adopted
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 adopted rules to revise risk-based capital standards to
take account of interest rate risk, as required by FDICIA.
Legislation enacted as part of the Omnibus Budget Reconciliation Act of 1993
provides that deposits in U.S. offices and certain claims for administrative
expenses and employee compensation against a U.S. insured depository institution
which has failed will be afforded a priority over other general unsecured
claims, including deposits in non-U.S. offices and claims under non-depository
contracts in all offices, against such an institution in the "liquidation or
other resolution" of such an institution by any receiver. Accordingly, such
priority creditors (including FDIC, as the subrogee of insured depositors) of
State Street Bank will be entitled to priority over unsecured creditors in the
event of a "liquidation or other resolution" of such an institution.
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. The right of State
Street to participate as a stockholder in any distribution of assets of State
Street Bank upon its liquidation or reorganization or otherwise is subject to
the prior claims by creditors of State Street Bank, 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 provides 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 therefore. 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, 1997, State Street Bank
could have declared and paid dividends of $694 million 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. Government regulations of
banks and bank holding companies are intended primarily for the protection of
depositors of the banks, rather than of the stockholders of the institutions.
FACTORS AFFECTING FUTURE RESULTS
From time to time information provided by State Street, statements made by its
employees, or information included in its filings with the Securities and
Exchange Commission (including this Form 10-K), may contain statements which are
not historic facts (so-called "forward looking statements"), including
statements about the Corporation's confidence and strategies and its expectation
about revenues and market growth, new technologies, services and opportunities,
and earnings. These statements may be identified by such forward looking
terminology as "expect", "look", "believe", "anticipate", "may", "will", or
similar statements or variations of such terms. These forward-looking statements
involve certain risks and uncertainties which could cause actual results to
differ materially. Factors that may cause such differences include, but are not
limited to, the factors discussed in this section and elsewhere in this Form
10-K. Each of these factors, and others, are also discussed from time to time in
the Corporation's other filings with the Securities and Exchange Commission,
including its reports on Form 10-Q.
Cross-border investing. Cross-border investing by customers worldwide benefits
State Street's revenue. Future revenue may increase or decrease depending upon
the extent of cross-border investments made by customers or future customers.
Savings rate of individuals. State Street benefits from the savings of
individuals that are invested in mutual funds or defined contribution plans.
Changes in savings rates or investment styles may affect revenue.
Value of worldwide financial markets. As worldwide financial markets increase or
decrease in value, State Street's opportunities to invest and service financial
assets may change. Since a portion of the Corporation's fees are based on the
value of assets under custody and management, fluctuations in worldwide
securities market valuations will affect revenue.
Dynamics of markets served. Changes in markets served, including the growth rate
of U.S. mutual funds, the pace of debt issuance, outsourcing decisions, and
mergers, acquisitions and consolidations among customers and competitors can
affect revenue. In general, State Street benefits from an increase in the volume
of financial market transactions serviced.
State Street provides services worldwide. Global and regional economic factors
and changes or potential changes in laws and regulations affecting the
Corporation's business, including changes in monetary policy, could also affect
results of operations.
Interest rates. Market interest rate levels, the shape of the yield curve and
the direction of interest rate changes affect both net interest revenue and
fiduciary compensation from securities lending. In a stable rate environment,
State Street benefits from high interest rates, because it has a larger amount
of interest-earning assets than interest-bearing liabilities, and from a steeper
curve. All else being equal, in the short term State Street benefits from
falling interest rates and is negatively affected by rising rates because
interest-bearing liabilities re-price sooner than interest-earning assets.
Volatility of currency markets. The degree of volatility in foreign exchange
rates can affect the amount of foreign exchange trading revenue.
Pace of pension reform. State Street expects to benefit from worldwide pension
reform that creates additional pools of assets that use custody and related
services and investment management services. The pace of pension reform may
affect the pace of revenue growth.
Pricing/competition. Future prices the Corporation is able to obtain for its
products may increase or decrease from current levels depending upon demand for
its products, its competitors' activities, and the introduction of new products
into the marketplace.
Pace of new business. The pace at which existing and new customers use
additional services and assign additional assets to State Street for management
or custody will affect future results.
Business mix. Changes in business mix, including the mix of U.S. and non-U.S.
business, will affect future results.
Rate of technological change. Technological change creates opportunities for
product differentiation and reduced costs as well as the possibility of
increased expenses. State Street's financial performance depends in part on its
ability to develop and market new and innovative services and to adopt or
develop new technologies that differentiate State Street's products or provide
cost efficiencies.
Year 2000 modifications. State Street has implemented a program that addresses
all aspects of Year 2000 compliance. For information as to the program, its
costs, and projected completion date, see page 16 of State Street's 1997 Annual
Report to Stockholders, under the caption "Year 2000", which information is
incorporated by reference. The costs and projected completion date of State
Street's Year 2000 program are estimates. Factors that may cause material
differences include the availability and cost of systems and other personnel,
non-compliance of third-party providers, and similar uncertainties. If necessary
modifications and conversions are not completed in time, the Year 2000 issue
could affect State Street's performance.
Acquisitions and alliances. Acquisitions of complementary businesses and
technologies and strategic alliances are an active part of State Street's
overall business strategy, and the Corporation has completed several
acquisitions in recent years. However, there can be no assurance that services,
technologies, key personnel, and businesses of acquired companies will be
effectively assimilated into State Street's business or service offerings or
that alliances will be successful.
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, selected financial data and management's discussion and analysis of
financial condition and results of operation, all of which appear in State
Street's 1997 Annual Report to Stockholders and is incorporated by reference
herein.
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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>
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1997 1996 1995
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Average Average Average Average Average Average
(Dollars in millions) Balance Interest Rate Balance Interest Rate Balance Interest Rate
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits with banks(1) $ 8,516 $ 415 4.88% $ 7,041 $ 336 4.78% $ 5,466 $ 287 5.25%
Securities purchased under resale
agreements and securities borrowed 6,413 354 5.52 6,010 326 5.43 5,569 329 5.91
Federal funds sold .................. 708 39 5.57 561 30 5.35 475 28 5.97
Trading account assets .............. 153 9 5.60 326 18 5.41 412 21 5.13
Investment securities:
U.S. Treasury and Federal agencies 5,980 360 6.03 4,319 261 6.03 4,139 243 5.89
State and political subdivisions .. 1,645 105 6.37 1,478 92 6.25 1,183 71 5.96
Other investments ................. 2,659 163 6.12 2,111 127 6.01 2,212 134 6.05
Loans(2):
Domestic .......................... 3,905 243 6.22 3,353 212 6.32 2,926 201 6.88
Non-U.S. .......................... 1,446 111 7.67 1,160 78 6.71 738 57 7.69
-------- ------ -------- ------ ------ ------
Total interest-earning assets ... 31,425 1,799 5.73 26,359 1,480 5.61 23,120 1,371 5.93
------ ------ ------
Cash and due from banks ............. 1,119 1,164 1,026
Allowance for loan losses ........... (76) (70) (62)
Premises and equipment .............. 475 458 481
Customers' acceptance liability(3) .. 68 42 63
Other assets ........................ 2,415 1,530 1,554
-------- -------- -------
Total Assets ...................... $ 35,426 $ 29,483 $26,182
======== ======== =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits:
Savings ........................... $ 2,081 $ 87 4.17% $ 2,097 $ 86 4.10% $ 1,913 $ 85 4.45%
Time .............................. 153 8 5.08 150 8 5.26 131 7 5.47
Non-U.S. .......................... 12,645 417 3.30 10,372 331 3.19 8,470 324 3.82
Securities sold under repurchase
agreements ........................ 9,598 499 5.20 7,819 394 5.05 7,080 399 5.65
Federal funds purchased ............. 291 15 5.26 357 19 5.18 504 30 5.89
Other short-term borrowings ......... 602 30 5.03 707 36 5.04 761 41 5.32
Notes payable ....................... 76 3 4.34 124 3 2.47 214 12 5.73
Long-term debt ...................... 717 55 7.70 213 15 6.95 127 9 6.71
-------- ------ -------- ------ ------- ------
Total interest-bearing liabilities 26,163 1,114 4.26 21,839 892 4.08 19,200 907 4.72
------ ---- ------ ----- ------ ----
Non-interest bearing deposits ....... 5,288 4,638 4,113
Acceptances outstanding (3) ......... 68 42 64
Other liabilities ................... 2,060 1,346 1,322
Stockholders' equity ................ 1,847 1,618 1,483
-------- -------- -------
Total Liabilities and Stockholders'
Equity .......................... $ 35,426 $ 29,483 $26,182
======== ======== =======
Net interest revenue ................ $ 685 $ 588 $ 464
------ ------ ------
Excess of rate earned over rate paid 1.47% 1.53% 1.21%
==== ==== ====
Net Interest Margin(4) .............. 2.18% 2.23% 2.01%
==== ==== ====
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Amounts reported were with non-U.S. domiciled offices of other banks.
(2) Non-accrual loans are included in the average loan amounts outstanding.
(3) In 1997, 1996 and 1995, 28%, 40% and 22% of acceptances were non-U.S.
(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%, adjusted for applicable state income taxes net of the related Federal tax
benefit.
<PAGE>
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>
- ---------------------------------------------------------------------------------------------------------------------------------
1997 Compared to 1996 1996 Compared to 1995
------------------------------------ -----------------------------------
Change in Change in Net Increase Change in Change in Net Increase
(Dollars in millions) Volume Rate (Decrease) Volume Rate (Decrease)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest revenue related to:
Interest-bearing deposits with banks ................. $ 72 $ 7 $ 79 $ 71 $ (22) $ 49
Securities purchased under resale agreements and
securities borrowed ................................ 22 6 28 95 (98) (3)
Federal funds sold ................................... 8 1 9 4 (2) 2
Trading account assets ............................... (10) 1 (9) (4) 1 (3)
Investment securities:
U.S. Treasury and Federal agencies ................. 100 100 12 6 18
State and political subdivisions ................... 10 2 12 18 3 21
Other investments .................................. 34 2 36 (6) (1) (7)
Loans:
Domestic ........................................... 34 (3) 31 24 (13) 11
Non-U.S. ........................................... 21 12 33 27 (6) 21
----- ----- ----- ---- ----- -----
Total interest-earning assets ...................... 291 28 319 241 (132) 109
----- ----- ----- ---- ----- -----
Interest expense related to:
Deposits:
Savings ............................................ (1) 2 1 5 (4) 1
Time................................................ 1 1
Non-U.S. ........................................... 75 11 86 27 (20) 7
Federal funds purchased .............................. (3) (3) (8) (3) (11)
Securities sold under repurchase agreements .......... 92 12 104 269 (274) (5)
Other short-term borrowings .......................... (6) (6) (3) (2) (5)
Notes payable ........................................ (4) (5) (9)
Long-term debt ....................................... 38 2 40 6 6
----- ----- ----- ---- ----- -----
Total interest-bearing liabilities ................. 195 27 222 293 (308) (15)
----- ----- ----- ---- ----- -----
Net Interest Revenue ................................. $ 96 $ 1 $ 97 $(52) $ 176 $ 124
===== ===== ===== ==== ===== =====
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Investment Portfolio
<TABLE>
<CAPTION>
Investment securities consisted of the following at December 31:
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Held to Maturity (at amortized cost):
U.S. Treasury and Federal agencies .................................................... $ 893 $ 859 $ 824
-------- -------- ---------
Total ............................................................................... $ 893 $ 859 $ 824
======== ======== =========
Available for Sale (at fair value):
U.S. Treasury and Federal agencies .................................................... $ 4,919 $ 4,643 $ 2,284
State and political subdivisions ...................................................... 1,657 1,559 1,306
Asset-backed securities ............................................................... 1,673 1,200 893
Collateralized mortgage obligations ................................................... 571 631 720
Other investments ..................................................................... 662 495 332
-------- -------- ---------
Total ............................................................................... $ 9,482 $ 8,528 $ 5,535
======== ======== =========
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
State Street reclassified certain securities from held to maturity to available
for sale on December 1, 1995, in accordance with SFAS No. 115 Implementation
Guides. At the date of transfer the amortized cost of those securities was $3.8
billion and the net unrealized gain on those securities was $3 million, which
was recorded net of tax in stockholders' equity at the date of transfer.
<PAGE>
The maturities of investment securities at December 31, 1997 and the weighted
average yields (fully taxable equivalent basis) were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Years
-----------------------------------------------------------------------------
Under 1 1 to 5 5 to 10 Over 10
-----------------------------------------------------------------------------
(Dollars in millions) Amount Yield Amount Yield Amount Yield Amount Yield
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to Maturity (at amortized cost):
U.S. Treasury and Federal agencies .......... $ 644 5.86% $ 249 5.97%
--------- --------
Total ................................... $ 644 $ 249
========= ========
Available for Sale (at fair value):
U.S. Treasury and Federal agencies........... $ 3,280 6.03 $ 1,547 6.06 $ 66 6.42% $ 26 7.70%
State and political subdivisions ............ 454 6.36 746 6.54 119 6.28 338 6.29
Asset-backed securities ..................... 1,115 6.09 536 6.18 20 7.22 2 6.09
Collateralized mortgage obligations ......... 337 6.14 206 6.14 19 6.14 9 6.29
Other investments ........................... 73 5.35 570 5.19 19 6.29
--------- -------- ------ ------
Total ................................... $ 5,259 $ 3,605 $ 224 $ 394
========= ======== ====== ======
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Loan Portfolio
Domestic and non-U.S. loans at December 31 and average loans outstanding for the
years ended December 31, were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic:
Commercial and financial ............................................... $ 3,623 $ 3,022 $ 2,620 $ 2,111 $ 1,935
Lease financing......................................................... 296 304 315 342 255
Real estate............................................................. 74 118 96 101 94
-------- -------- -------- -------- --------
Total domestic........................................................ 3,993 3,444 3,031 2,554 2,284
-------- -------- -------- -------- --------
Non-U.S.:
Commercial and industrial .............................................. 829 764 634 511 296
Lease financing ........................................................ 669 415 256 110 71
Banks and other financial institutions ................................. 59 78 57 52 26
Other .................................................................. 12 12 8 6 3
-------- -------- -------- -------- --------
Total Non-U.S. ....................................................... 1,569 1,269 955 679 396
-------- -------- -------- -------- --------
Total loans .............................................................. $ 5,562 $ 4,713 $ 3,986 $ 3,233 $ 2,680
-------- -------- -------- -------- --------
Average loans outstanding ................................................ $ 5,351 $ 4,513 $ 3,664 $ 3,401 $ 2,576
======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Loan maturities for selected loan categories at December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Years
---------------------------
(Dollars in millions) Under 1 1 to 5 Over 5
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial and financial ........................................................................... $ 3,143 $ 413 $ 67
Non-U.S. ........................................................................................... 900 669
Real estate ........................................................................................ 21 44 9
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
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 millions)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Loans with predetermined interest rates ................................................................................ $ 817
Loans with floating or adjustable interest rates ....................................................................... 385
-------
Total ................................................................................................................ $ 1,202
=======
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Loans are evaluated on an individual basis to determine the appropriateness of
renewing each loan. State Street does not have a general rollover policy.
Unearned revenue included in loans was $1 million for each of the years ended
December 31, 1997 and 1996.
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.
Loans eligible for non-accrual, but considered both well secured and in the
process of collection, are treated as exceptions and may be exempted from
non-accrual status. 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 net interest revenue. Past due loans are loans on which
principal or interest payments are over 90 days delinquent, but where interest
continues to be accrued.
Non-accrual loans totaled $2 million, $12 million, $16 million, $23 million and
$27 million as of December 31, 1997 through 1993 respectively. Non-accrual loans
to non-U.S. customers were less than $1 million in 1997, $6 million in 1996, and
none in 1995, 1994 and 1993.
Past due loans totaled less than $1 million as of December 31, 1997 through
1993, respectively. Past due loans included loans to non-U.S. customers for less
than $1 million in 1997, and none for the years 1996 through 1993.
The interest revenue for 1997 which would have been recorded related to these
non-accrual loans is less than $1 million for domestic loans. The interest
revenue that was recorded on these non-accrual loans was less than $1 million
all of which relates to domestic loans.
<PAGE>
Allowance for Loan Losses
The changes in the allowance for loan losses for the years ended December 31,
were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year:
Domestic ................................................................ $ 63 $ 54 $ 53 $ 51 $ 57
Non-U.S. ................................................................ 10 9 5 3 1
----- ----- ----- ----- -----
Total allowance for loan losses ....................................... 73 63 58 54 58
----- ----- ----- ----- -----
Provision for loan losses:
Domestic ................................................................ 6 7 4 9 10
Non-U.S. ................................................................ 10 1 4 2 1
----- ----- ----- ----- -----
Total provision for loan losses ....................................... 16 8 8 11 11
----- ----- ----- ----- -----
Loan charge-offs:
Commercial and financial ................................................ 1 4 5 10 16
Real estate ............................................................. 1 1 2
Non-U.S. ................................................................ 6 1 1
----- ----- ----- ----- -----
Total loan charge-offs ................................................ 8 5 7 10 18
----- ----- ----- ----- -----
Recoveries:
Commercial and financial ................................................ 1 3 2 3 2
Real estate ............................................................. 3 1
Non-U.S. ................................................................ 1 1 1
----- ----- ----- ----- -----
Total recoveries ...................................................... 2 7 4 3 2
----- ----- ----- ----- -----
Net loan charge-offs (recoveries) ..................................... 6 (2) 3 7 16
----- ----- ----- ----- -----
Allowance of non-U.S. subsidiary purchased ................................ 1
Balance at end of year:
Domestic ................................................................ 68 63 54 53 51
Non-U.S. ................................................................ 15 10 9 5 3
----- ----- ----- ----- -----
Total allowance for loan losses ....................................... $ 83 $ 73 $ 63 $ 58 $ 54
===== ===== ===== ===== =====
Ratio of net charge-offs (recoveries) to average loans
outstanding ............................................................. .11% (.02)% .07% .23% .63%
=== ==== === === ===
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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
its 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, discounted 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 $16 million and $8 million in 1997 and 1996, respectively.
At December 31, 1997, the allowance for loan losses was $83 million, or 1.49% of
loans. This compares with an allowance of $73 million, or 1.54% of loans a year
ago. This decline in the allowance percentage reflects improvement in measures
of credit quality and a continuing satisfactory outlook for general economic
conditions and its effect on borrowers.
Credit Quality
At December 31, 1997, loans comprised 14% of State Street's assets. State
Street's loan policies limit the size of individual loan exposures to reduce
risk through diversification.
In 1997, net charge-offs were $6 million versus net recoveries of $2 million in
1996. Net charge-offs for 1997, as a percentage of average loans, were .11%
compared to net recoveries as a percentage of average loans of .02% for 1996.
At December 31, 1997, total non-performing assets were $6 million, a $7 million
decrease from year-end 1996. For 1997 and 1996, respectively, non-performing
assets include $2 million and $12 million of non-accrual loans and $4 million
and less than $1 million of other real estate owned. In 1997, loans placed on
non-accrual status were more than offset by payments and charge-offs. The
increase in other real estate owned is due to the transfer of real estate
previously acquired for expansion that will occur elsewhere.
In 1997, the measures of credit quality improved, as did the general economic
outlook. We expect these levels of credit quality to continue in 1998. Actual
results may differ materially from these forward looking statements due to
deterioration in the economic conditions and other unforeseen factors.
Cross-Border Outstandings
Countries with which State Street has cross-border outstandings (primarily
deposits and letters of credit to banks and other financial institutions) of at
least 1% of its total assets at December 31, were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Japan ..................................................................................... $ 1,826 $ 1,419 $ 921
United Kingdom ............................................................................ 1,793 806 834
Germany ................................................................................... 1,482 1,051 728
Canada .................................................................................... 1,127 675 359
Netherlands ............................................................................... 1,053 622 487
Australia ................................................................................. 796 741 784
France .................................................................................... 715 883 852
Belgium ................................................................................... 618 350 337
Italy ..................................................................................... 605 628 620
---------- -------- ---------
Total outstandings ...................................................................... $ 10,015 $ 7,175 $ 5,922
========== ======== =========
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Aggregate of cross-border outstandings in countries having between .75% and 1%
of total assets at December 31, 1997 was $729 million ($369 million for
Switzerland and $360 million for Sweden); at December 31, 1996 was $276 million
(Switzerland); and at December 31, 1995 was $240 million (Austria).
Deposits
The average balance and rates paid on interest-bearing deposits for the years
ended December 31, were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- --------------------
Average Average Average Average Average Average
(Dollars in millions) Balance Rate Balance Rate Balance Rate
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Non-interest bearing deposits ........................... $ 5,191 $ 4,586 $ 4,063
Savings deposits ........................................ 2,081 4.17% 2,097 4.10% 1,913 4.45%
Time deposits ........................................... 153 5.08 150 5.26 131 5.47
--------- --------- --------
Total domestic ........................................ $ 7,425 $ 6,833 $ 6,107
========= ========= ========
Non-U.S.:
Non-interest bearing deposits ........................... $ 97 $ 52 $ 50
Interest bearing ........................................ 12,645 3.30 10,372 3.19 8,470 3.82
--------- --------- --------
Total non-U.S. ........................................ $ 12,742 $ 10,424 $ 8,520
========= ========= ========
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Maturities of domestic certificates of deposit of $100,000 or more at December
31, 1997 were as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
(Dollars in millions)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C>
3 months or less .................................................................................................. $ 166
3 to 6 months ..................................................................................................... 6
6 to 12 months .................................................................................................... 10
-------
Total ........................................................................................................... $ 182
=======
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1997 substantially all foreign time deposit liabilities were in
amounts of $100,000 or more. Included in non-interest bearing deposits were
non-U.S. deposits of $72 million at December 31, 1997 and $28 million at
December 31, 1996 and 1995, respectively.
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:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income to:
Average stockholders' equity .............................................................. 20.6% 18.1% 16.7%
Average total assets ...................................................................... 1.07 .99 .94
Dividends declared to net income ............................................................ 18.2 20.9 22.7
Average equity to average assets ............................................................ 5.2 5.5 5.7
Risk-based capital ratios:
Tier 1 capital ............................................................................ 13.7 13.4 14.0
Total capital ............................................................................. 13.8 13.6 14.5
Leverage Ratio .............................................................................. 5.9 5.9 5.6
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 December 31:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Securities Sold Under
Federal Funds Purchased Repurchase Agreement
------------------------------------ ---------------------------------------
(Dollars in millions) 1997 1996 1995 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31 .................. $ 189 $ 117 $ 467 $ 7,409 $ 7,387 $ 5,121
Maximum outstanding at any
month end ............................. 402 454 971 10,106 10,013 7,372
Average outstanding during the year ..... 291 357 504 9,598 7,819 7,080
Weighted average interest rate at end
of year .............................. 5.69% 5.05% 3.47% 5.20% 5.20% 5.17%
Weighted average interest rate during
the year ............................. 5.26 5.18 5.89 5.20 5.05 5.65
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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 500,000 square feet (or
approximately 54% of the space in this building). The initial lease term was 30
years with two successive extension options of 20 years each at negotiated
rental rates. State Street exercised the first of these two options which became
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 State Street Bank's operations facilities. 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 92,000 square
foot building used as a second data center, and is currently constructing a
100,000 square foot data center which is scheduled for completion by year end
1998.
The remaining offices and facilities of State Street and its subsidiaries are
leased. As of December 31, 1997, the aggregate mortgages and lease payments, net
of sublease revenue, payable within one year amounted to $76 million plus
assessments for real estate tax, cleaning and operating escalation.
For additional information relating to premises, see Note E to the Consolidated
Financial Statements.
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
<PAGE>
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 ............ 57 Chairman and Chief Executive Officer
David A. Spina ................ 55 President and Chief Operating Officer
Dale L. Carleton .............. 52 Vice Chairman
Nicholas A. Lopardo ........... 50 Vice Chairman
Maureen Scannell Bateman ...... 54 Executive Vice President and General Counsel
Susan Comeau .................. 56 Executive Vice President
Ronald E. Logue ............... 52 Executive Vice President
Ronald L. O'Kelley ............ 52 Executive Vice President, Chief Financial Officer and Treasurer
Albert E. Petersen ............ 51 Executive Vice President
William M. Reghitto ........... 55 Executive Vice President
John R. Towers ................ 56 Executive Vice President
- --------------------------------------------------------------------------------------------------------------
</TABLE>
All executive officers are elected by the Board of Directors. Each of the
Chairman, President and Treasurer has been elected to hold office until the next
annual meeting of stockholders and until their respective successors are chosen
and qualified. Other executive officers hold office at the pleasure of the
Board. There are no family relationships among any of the directors and
executive officers of State Street. With the exception of Ms. Bateman and
Messrs. O'Kelley and Towers, all of the executive officers have been officers of
State Street for five years or more.
Ms. Bateman became an officer of State Street in 1997. Prior to joining State
Street, she was Managing Director and General Counsel at United States Trust
Company of New York for seven years. Prior to that, she had been Vice President
and Counsel at Bankers Trust Company.
Mr. O'Kelley became an officer of State Street in 1995. Prior to joining State
Street, he was Vice President and Chief Financial Officer of Douglas Aircraft
Company, a subsidiary of McDonnell Douglas Corporation. Prior to that he was
Senior Vice President and Chief Financial Officer of Rolls-Royce, Inc.
Mr. Towers became an officer of State Street in 1994. Prior to joining State
Street he was Senior Vice President and Department Executive of Securities
Processing at BankBoston. Prior to that he was Senior Vice President and
Division Head of Mutual Funds at United States Trust Company of New York.
<PAGE>
PART II
ITEM 5. MARKET FOR 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 20 of State Street's 1997
Annual Report to Stockholders and is incorporated by reference. There were 6,199
stockholders of record at December 31, 1997. State Street's common stock is
listed on the New York Stock Exchange, ticker symbol: STT. State Street's common
stock is also listed on the Boston and Pacific Stock Exchanges.
On May 28, 1997, State Street distributed a two-for-one stock split in the form
of a 100% stock dividend to shareholders.
Directors of the Corporation who are not employees received an annual retainer
in 1997 of $25,000, payable at the election of the director in cash or in shares
of Common Stock of the Corporation. All non-employee directors elected to
receive payment of their 1997 annual retainer in shares of Common Stock. An
aggregate of 10,780 shares were issued in 1997. Exemption from registration of
the shares is claimed by the Corporation under Section 4(2) of the Securities
Act of 1933.
In July 1997, State Street, by vote of its Board of Directors, awarded to each
non-employee director in office on April 16, 1997 the right to receive 260
shares of Common Stock (the number of shares obtained by dividing one-half of
the annual retainer of each director by the closing price of a share of the
Corporation's stock on July 1, 1997), which shares will be issued to the
director following the date he or she ceases to be a director of the Corporation
(or, if so elected by an individual director, on a later date, but not more than
10 years after the individual ceases to be a director). The Board of Directors
may, at any time, vote to accelerate the issuance of the deferred shares to a
director. Rights to receive an aggregate of 3,900 shares were awarded. Exemption
from registration of the awards is claimed by the Corporation under Section 4(2)
of the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is set forth on page 9 of State Street's
1997 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 1997 Annual
Report to Stockholders on pages 2 through 7 and pages 10 through 23 and is
incorporated by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information required by this item appears in State Street's 1997 Annual
Report to Stockholders on pages 21 through 23 and is incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, Report of Independent Auditors and
Supplemental Financial Data appear on pages 24 through 45 of State Street's 1997
Annual Report to Stockholders and are incorporated by reference. In addition,
discussion of restrictions on transfer of funds from State Street Bank to
Registrant is included in Part I, Item 1, "Dividends".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning State Street's directors appears on pages 1 to 6 of State
Street's Proxy statement for the 1998 Annual Meeting of Stockholders under the
caption "Election of Directors". 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.
Information concerning Section 16(a) Beneficial Ownership Reporting compliance
appears on page 9 of State Street's Proxy Statement for the 1998 Annual Meeting
of Stockholders under the caption "Compliance with Section 16(a) of the
Securities Exchange Act". Such information is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this item appears on pages 15 and 16 in State
Street's Proxy Statement for the 1997 Annual Meeting of Stockholders under the
caption "Executive Compensation", on page 7 in State Street's Proxy Statement
for the 1997 Annual Meeting of Stockholders under the caption "Compensation of
Directors", on pages 18 to 20 in State Street's Proxy Statement for the 1997
Annual Meeting of Stockholders under the caption "Retirement Benefits", on pages
10 to 14 in State Street's Proxy Statement for the 1998 Annual Meeting of
Stockholders under the caption "Report of the Executive Compensation Committee",
and on page 17 in State Street's Proxy Statement for the 1997 Annual Meeting of
Stockholders under the caption "Stockholder Return Performance Presentation".
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 8 and 9 in State Street's Proxy Statement for the
1998 Annual Meeting of Stockholders. 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 1997 Annual Meeting of
Stockholders under the caption "Certain Transactions". Such information is
incorporated by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(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, 1997 are incorporated by reference in Item 8 hereof:
Consolidated Statement of Income - Years ended December 31, 1997, 1996
and 1995
Consolidated Statement of Condition - December 31, 1997 and 1996
Consolidated Statement of Cash Flows - Years ended December 31, 1997,
1996 and 1995
Consolidated Statement of Changes in Stockholders' Equity - Years ended
December 31, 1997, 1996, and 1995
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 is as
follows:
3.1 Restated Articles of Organization (as amended)
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)
4.1 The description of Registrant Common Stock included in the
Registrant effective registration statement report on Form
10, as filed with the Securities and Exchange Commission on
September 3, 1970 and amended on May 12, 1971 and
incorporated by reference
4.2 Rights Agreement dated as of September 15, 1988 between
Registrant 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 an incorporated by reference)
4.3 Amendment to Rights Agreement dated as of September 20,
1990 between Registrant 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)
4.4 Indenture dated as of May 1, 1983 between Registrant and
Morgan Guaranty Trust Company of New York, Trustee,
relating to Registrant 7 3/4% Convertible Subordinated
Debentures due 2008 (filed with the Securities and Exchange
Commission as Exhibit 4 to Registrant's Registration
Statement on Form S-3 filed on April 22, 1983, Commission
File No. 2-83251 and incorporated by reference)
4.5 Indenture dated as of August 2, 1993 between Registrant and
The First National Bank of Boston, as trustee relating to
Registrant's long-term notes (filed with the Securities and
Exchange Commission as Exhibit 4 to Registrant's Current
Report on Form 8-K dated October 8, 1993 and incorporated
by reference)
4.6 Instrument of Resignation, appointment, and acceptance,
dated as of February 14, 1996 between Registrant, The First
National Bank of Boston (resigning trustee) and Fleet
National Bank of Massachusetts (successor trustee) (filed
with the Securities and Exchange Commission as Exhibit 4.6
to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated by reference)
4.7 Junior Subordinated Indenture dated as of December 15, 1996
between Registrant and the First National Bank of Chicago
(filed with the Securities and Exchange Commission as
Exhibit 1 to Registrant's Current Report on Form 8-K dated
February 27, 1997 and incorporated by reference)
4.8 Amended and Restated Trust Agreement dated as of December
15, 1996 relating to State Street Institutional Capital A
(filed with the Securities and Exchange Commission as
Exhibit 2 to Registrant's Current Report on Form 8-K dated
February 27, 1997 and incorporated by reference)
4.9 Capital Securities Guarantee Agreement dated as of December
15, 1996 between Registrant and the First National Bank of
Chicago (filed with the Securities and Exchange Commission
as Exhibit 3 to Registrant's Current Report on Form 8-K
dated February 27, 1997 and incorporated by reference)
4.10 Amended and Restated Trust Agreement, dated March 11, 1997
relating to State Street Institutional Capital B (filed
with the Securities and Exchange Commission as Exhibit 2 to
the Registrant's Current Report on Form 8-K dated March 11,
1997 and incorporated by reference)
4.11 Capital Securities Guarantee Agreement dated March 11, 1997
between registrant and the First National Bank of Chicago
(filed with the Securities and Exchange Commission as
Exhibit 3 to Registrant's Current Report on Form 8-K dated
March 11, 1997 and incorporated by reference)
4.12 (Note: Registrant agrees to furnish to the Securities and
Exchange Commission upon request a copy of any other
instrument with respect to long-term debt of Registrant and
its subsidiaries. Such other instruments are not filed
herewith since no such instrument relates to outstanding
debt in an amount greater than 10% of the total assets of
Registrant and its subsidiaries on a consolidated basis.)
4.13 Instrument of Resignation, appointment and acceptance dated
as of June 26, 1997 between Registrant, Fleet National Bank
(resigning trustee) and First Trust National Association
(successor trustee)
10.1 Registrant's 1984 Stock Option Plan as amended (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)
10.2 Registrant's 1985 Stock Option and Performance Share Plan
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, 1985 and
incorporated by reference)
10.3 Registrant's 1989 Stock Option Plan 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, 1989 and incorporated by reference)
10.4 Registrant's 1990 Stock Option and Performance Share Plan
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, 1990 and
incorporated by reference)
10.5 Registrant's 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)
10.5A Amendment No. 1 dated as of October 19, 1995, to
Registrant's Supplemental Executive Retirement Plan (filed
with the Securities and Exchange Commission as Exhibit
10.6A to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 and incorporated by reference)
10.6 Individual Pension Agreement with Marshall N. Carter (filed
with the Securities and Exchange Commission as Exhibit
10.10 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1991 and incorporated by reference)
10.7 Revised Termination Benefits Arrangement with Marshall N.
Carter (filed with the Securities and Exchange Commission
as Exhibit 10.10 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995 and incorporated by
reference)
10.8 Registrant's 1994 Stock Option and Performance Unit Plan
(filed with the Securities and Exchange Commission as
Exhibit 10.17 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993 and incorporated by
reference)
10.8A Amendment No. 1 dated as of October 19, 1995, to
Registrant's 1994 Stock Option and Performance Unit Plan
(filed with the Securities and Exchange Commission as
Exhibit 10.13A to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995 and incorporated by
reference)
10.9 Registrant's Supplemental Defined Benefit Pension Plan for
Senior Executive Officers (filed with the Securities and
Exchange Commission as Exhibit 10.21 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994
and incorporated by reference)
10.10 Registrant's Non-employee Director Retirement Plan (filed
with the Securities and Exchange Commission as Exhibit
10.22 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994 and incorporated by reference)
10.11 State Street Global Advisors Incentive Plan for 1996 (filed
with the Securities and Exchange Commission as Exhibit
10.19 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 and incorporated by reference)
10.12 Forms of Employment Agreement with Officers (Levels 1, 2,
and 3) approved by the Board of Directors on September,
1995 (filed with the Securities and Exchange Commission as
Exhibit 10.20 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995 and incorporated by
reference)
10.13 State Street Global Advisors Equity Compensation Plan
(filed with the Securities and Exchange Commission as
Exhibit 10 to the Registrant's Form 10-Q for the quarterly
period ended September 30, 1996 and incorporated by
reference)
10.14 Senior Executives Annual Incentive Plan (filed with the
Securities and Exchange Commission as Exhibit 10.17 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated by reference)
10.15 Executive Compensation Trust Agreement dated December 6,
1996 (Rabbi Trust) (filed with the Securities and Exchange
Commission as Exhibit 10.18 to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1996 and
incorporated by reference)
10.16 Registrant's 1997 Equity Incentive Plan (filed with the
Securities and Exchange Commission as Exhibit 10.22 to the
Registrant's Form 10-Q for the quarterly period ended June
30, 1997 and incorporated by reference)
10.17 Amendment to Registrant's 1997 Equity Incentive Plan
10.18 Description of 1997 deferred stock awards and issuances in
lieu of retainer to non-employee directors
12.1 Statement of ratio of earnings to fixed charges
13 Portions of State Street Corporation's Annual Report to
Stockholders for the year ended December 31, 1997. With the
exception of the information incorporated by reference in
Items 1, 2, 5, 6, 7, 7A, 8 and 14 of this Form 10-K, the
Annual Report to Stockholders is not deemed filed as part
of this report.
21.1 Subsidiaries of State Street Corporation
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule (such schedule is not deemed filed
as part of this report) year ended December 31, 1997
27.2 Restated Financial Data Schedule year ended December 31,
1996
27.3 Restated Financial Data Schedule year ended December 31,
1995
27.4 Restated Financial Data Schedule nine months ended
September 30, 1997
27.5 Restated Financial Data Schedule six months ended June 30,
1997
27.6 Restated Financial Data Schedule three months ended March
31, 1997
27.7 Restated Financial Data Schedule nine months ended
September 30, 1996
27.8 Restated Financial Data Schedule six months ended June 30,
1996
27.9 Restated Financial Data Schedule three months ended March
30, 1996
(b) REPORTS ON FORM 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, on March 19, 1998, thereunto duly authorized.
STATE STREET CORPORATION
By /s/ Rex S. Schuette
----------------------------
REX S. SCHUETTE,
Senior Vice President and
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 19, 1998 by the following persons on behalf of
the registrant and in the capacities indicated.
OFFICERS:
/s/ Marshall N. Carter /s/ Ronald L. O'Kelley
- ----------------------------------- --------------------------------
MARSHALL N. CARTER, RONALD L. O'KELLEY,
Chairman and Chief Executive Officer Executive Vice President, Chief
Financial Officer and Treasurer
/s/ Rex S. Schuette
--------------------------------
REX S. SCHUETTE,
Senior Vice President and
Chief Accounting Officer
DIRECTORS:
/s/ Tenley E. Albright
- ----------------------------------- --------------------------------
TENLEY E. ALBRIGHT JOSEPH A. BAUTE
/s/ I. Macallister Booth /s/ James I. Cash
- ----------------------------------- --------------------------------
I. MACALLISTER BOOTH JAMES I. CASH
/s/ Truman S. Casner
- ----------------------------------- --------------------------------
TRUMAN S. CASNER NADER F. DAREHSHORI
/s/ Arthur L. Goldstein /s/ David P. Gruber
- ----------------------------------- --------------------------------
ARTHUR L. GOLDSTEIN DAVID P. GRUBER
/s/ Charles F. Kaye /s/ John M. Kucharski
- ----------------------------------- --------------------------------
CHARLES F. KAYE JOHN M. KUCHARSKI
/s/ Charles R. Lamantia /s/ David B. Perini
- ----------------------------------- --------------------------------
CHARLES R. LAMANTIA DAVID B. PERINI
/s/ Dennis J. Picard /s/ Alfred Poe
- ----------------------------------- --------------------------------
DENNIS J. PICARD ALFRED POE
/s/ Bernard W. Reznicek /s/ David A. Spina
- ----------------------------------- --------------------------------
BERNARD W. REZNICEK DAVID A. SPINA
- ----------------------------------- --------------------------------
DIANE CHAPMAN WALSH ROBERT E. WEISSMAN
<PAGE>
EXHIBIT INDEX
(FILED HEREWITH)
3.1 Restated Articles of Organization (as amended)
4.13 Instrument of Resignation, appointment and acceptance
10.17 Amendment to Registrant's 1997 Equity Incentive Plan
10.18 Description of 1997 deferred stock awards and issuances in lieu of
retainer to non-employee directors
12.1 Statement of ratio of earnings to fixed charges
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, 1997
(not covered by the Report of Independent Public Accountants)
13.3 Letter to Stockholders
13.4 State Street Corporation Consolidated Financial Statements and
Schedules
21.1 Subsidiaries of State Street Corporation
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule (such schedule is not to be deemed filed as
part of this report) year ended December 31, 1997
27.2 Restated Financial Data Schedule year ended December 31, 1996
27.3 Restated Financial Data Schedule year ended December 31, 1995
27.4 Restated Financial Data Schedule nine months ended September 30,
1997
27.5 Restated Financial Data Schedule six months ended June 30, 1997
27.6 Restated Financial Data Schedule three months ended March 31, 1997
27.7 Restated Financial Data Schedule nine months ended September 30,
1996
27.8 Restated Financial Data Schedule six months ended June 30, 1996
27.9 Restated Financial Data Schedule three months ended March 30, 1996
<PAGE>
EXHIBIT 3.1
C.D. ARO--3 (Rev. 8--69) 25M-8-69-0452C6
THE COMMONWEALTH OF MASSACHUSETTS
JOHN F.X. DAVOREN
Secretary of the Commonwealth
STATE HOUSE
BOSTON, MASS.
ARTICLES OF ORGANIZATION
(UNDER G.L. CH. 156B)
INCORPORATORS
NAME POST OFFICE ADDRESS
Include given name in full in case of natural persons; in case of a
corporation, give state of incorporation.
H. Frederick Hagemann, Jr. 225 Franklin Street
Boston, Mass. 02101
George B. Rockwell 225 Franklin Street
Boston, Mass. 02101
John T. G. Nichols 225 Franklin Street
Boston, Mass. 02101
The above-named incorporator(s) do hereby associate (themselves) with
the intention of forming a corporation under the provisions of General Laws,
Chapter 156B and hereby state(s):
1. The name by which the corporation shall be known is:
State Street Boston Financial Corporation
2. The purposes for which the corporation is formed are as follows:
To acquire, hold, dispose of and otherwise deal in and with securities
(including but not limited to stocks, shares, evidences of beneficial interest,
evidences of indebtedness and evidences of any right to subscribe for or
purchase or sell any thereof), and any interest therein, issued or created by or
evidencing or representing any interest in any one or more banks, trust
companies, other corporations, associations, trusts, firms, partnerships,
governments, governmental or political units, instrumentalities, subdivisions,
agencies or authorities, or other organizations, persons or entities, public or
private; and
To engage in any other lawful business or activity in which a corporation
organized under the Business Corporation Law of Massachusetts is permitted to
engage.
NOTE: If provisions for which the space provided under Articles 2, 4, 5, and 6
is not sufficient additions should be set out on continuation sheets to be
numbered 2A, 2B, etc. Indicate under each Article where the provision is set
out. Continuation sheets shall be on 8 1/2" x 11" paper and must have a
left-hand margin 1 inch wide for binding. Only one side should be used.
<PAGE>
3. The total number of shares and the par value, if any, of each class of
stock which the corporation is authorized is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
CLASS OF STOCK -------------------------------------------------------------------
NUMBER OF SHARES NUMBER OF SHARES PAR AMOUNT
VALUE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Preferred None None $
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Common None 15,000 $10 $150,000
- ---------------------------------------------------------------------------------------
</TABLE>
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting powers,
qualifications, special or relative rights or privileges as to each class
thereof and any series now established:
None
*5. The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are as follows:
None
*6. Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or
for limiting,defining, or regulating the powers of the corporation, or of
its directors or stockholders, or of any class of stockholders:
See Continuation Sheets 6A, 6B, 6C and 6D
*If there are no provisions state "None".
<PAGE>
CONTINUATION SHEET 6A
By-laws
The board of directors is authorized to make, amend or repeal the by-laws
of the corporation in whole or in part, except with respect to any provision
thereof which by law, by these articles of organization or by the by-laws
requires action by the stockholders.
Division of Directors into Classes
and Tenure of Office and Election Thereof
The board of directors shall consist of not less than three nor more than
thirty directors, the number of directors to be determined (within the foregoing
limits) initially by the incorporators and thereafter at each annual meeting of
the stockholders by such stockholders as have the right to vote thereon. The
incorporators, in connection with their election of the initial directors, shall
elect, as nearly as possible, one-third of such directors to hold office until
the 1970 annual meeting of the stockholders, one-third of such directors to hold
office until the 1971 annual meeting of the stockholders and one-third of such
directors to hold office until the 1972 annual meeting of the stockholders. At
the 1970 annual meeting of the stockholders and at each annual meeting of the
stockholders thereafter, the stockholders shall elect such number of directors
as equals the number of directors then determined by them less the number of
directors whose terms do not then expire. Each director so elected shall be
elected for such term of office of one, two or three years as will most nearly
result in the terms of office of one-third of all the directors expiring at each
of the next three annual meetings of the stockholders. Either the stockholders,
at any special meeting held for the purpose, or the board of directors, by vote
of a majority, of the directors then in office, may increase (subject to the
maximum limitation of thirty directors fixed above) the number of directors and
elect a new director or directors to fill the vacancy or vacancies so created
for such term or terms as will most nearly result in the terms of one-third of
all the directors expiring at each of the next three annual meetings of the
stockholders. Any other vacancy in the board of directors may be filled by vote
of a majority of the remaining directors, and any director elected to fill such
a vacancy shall hold office until the next annual meeting of the stockholders,
at which time the term to which he was elected shall be deemed to have expired.
Except as otherwise provided by law or by these articles of organization or,
with respect to the resignation or removal of directors, by, the by-laws,
directors shall hold office until the annual meeting of the stockholders at
which their terms are scheduled to expire and until either the election thereat
of directors to succeed the directors whose terms expire at that meeting or a
determination by the stockholders that the total number of directors for the
ensuing year shall be such that, in accordance with the foregoing provisions, no
directors are to be elected to succeed the directors whose terms expire at that
meeting. Directors may be elected to successive terms. No director need be a
stockholder. As used herein, the term "annua1 meeting of stockholders" shall
include any special meeting of the stockholders held in lieu thereof.
Place of Meetings of the Stockholders
Meetings of the stockholders may be held anywhere in the United States.
Partnership
The corporation may be a partner in any business enterprise which the
corporation would have power to conduct by itself.
Indemnification of Directors, Officers and Others
The corporation shall indemnify each person who is or was a director,
officer, employee or other agent of the corporation, and each person who is or
was serving at the request of the corporation as a director, trustee, officer,
employee or other agent of another organization in which it directly or
indirectly owns shares or of which it is directly or indirectly a creditor,
against all liabilities, costs and expenses, including but not limited to
amounts paid in satisfaction of judgments, in settlement or as fines and
penalties, and counsel fees and disbursements, reasonably incurred by him in
connection with the defense or disposition of or otherwise in connection with or
resulting from any action, suit or other proceeding, whether civil, criminal,
administrative or investigative, before any court or administrative or
legislative or investigative body, in which he may be or may have been involved
as a party or otherwise or with which he may be or have been threatened, while
in office or thereafter, by reason of his being or having been such a director,
officer, employee, agent or trustee, or by reason of any action taken or not
taken in any such capacity, except with respect to any matter as to which he
shall have been finally adjudicated by a court of competent jurisdiction not to
have acted in good faith in the reasonable belief that his action was in the
best interest of the corporation. Expenses, including but not limited to counsel
fees and disbursements, so incurred by any such person in defending any such
action, suit or proceeding, may be paid from time to time by the corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the person indemnified to repay the
amounts so paid if it shall ultimately be determined that indemnification of
such expenses is not authorized hereunder.
As to any matter disposed of by settlement by any such person, pursuant to
a consent decree or otherwise, no such indemnification either for the amount of
such settlement or for any other expenses shall be provided unless such
settlement shall be approved as in the best interests of the corporation, after
notice that it involves such indemnification, (a) by vote of a majority of the
disinterested directors then in Office (even though the disinterested directors
be less than a quorum), or (b) by any disinterested person or persons to whom
the question may be referred by vote of a majority of such disinterested
directors, or (c) by vote of the holders of a majority of the outstanding stock
at the time entitled to vote for directors, voting as a single class, exclusive
of any stock owned by any interested person, or (d) by any disinterested person
or persons to whom the question may be referred by vote of the holders of a
majority of such stock. No such approval shall prevent the recovery from any
such officer, director, employee, agent or trustee of any amounts paid to him or
on his behalf as indemnification in accordance with the preceding sentence if
such person is subsequently adjudicated by a court of competent jurisdiction not
to have acted in good faith in the reasonable belief that his action was in the
best interests of the corporation.
The right of indemnification hereby provided shall not be exclusive of or
affect any other rights to which any director, officer, employee, agent or
trustee may be entitled or which may lawfully be granted to him. As used herein,
the terms "director," "officer," "employee," "agent" and "trustee" include their
respective executors, administrators and other legal representatives, an
"interested" person is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding on the same or similar
grounds is then or had been pending or threatened, and a "disinterested" person
is a person against whom no such action, suit or other proceeding is then or had
been pending or threatened.
By action of the board of directors, notwithstanding any interest of the
directors in such action, the corporation may purchase and maintain insurance,
in such amounts as the board of directors may from time to time deem
appropriate, on behalf of any person who is or was a director, officer, employee
or other agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee or other agent of another
organization in which it directly or indirectly owns shares or of which it is
directly or indirectly a creditor, against any liability incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability.
Intercompany Transactions
No contract or transaction between the corporation and one or more of its
directors or officers, or between the corporation and any other organization of
which one or more of its directors or officers are directors, trustees or
officers, or in which any of them has any financial or other interest, shall be
void or voidable, or in any way affected, solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board of directors or committee thereof which authorizes, approves or
ratifies the contract or transaction, or solely because his or their votes are
counted for such purpose, if:
(a) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the board of directors
or the committee which authorizes approves or ratifies the contract or
transaction, and the board or committee in good faith authorizes, approves or
ratifies the contract or transaction by the affirmative votes of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or
(b) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
authorized, approved or ratified in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified by the board of directors, a
committee thereof, or the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the board of directors or of a committee thereof which
authorizes, approves or ratifies the contract or transaction. No director or
officer of the corporation shall be liable or accountable to the corporation or
to any of its stockholders or creditors or to any other person, either for any
loss to the corporation or to any other person or for any gains or profits
realized by such director or officer, by reason of any contract or transaction
as to which clauses (a), (b) or (c) above are applicable.
7. By-laws of the corporation have been duly adopted and the initial
directors, president, treasurer and clerk, whose names are set out below,
have been duly elected.
8. The effective date of organization of the corporation shall be the date of
filing with the Secretary of the Commonwealth or if later date is desired,
specify date, (not more than 30 days after date of filing.)
9. The following information shall not for any purpose be treated as a
permanent part of the Articles of Organization of the corporation.
a. The post office address of the initial principal office of the
corporation in Massachusetts is:
225 Franklin Street, Boston, Massachusetts 02101
b. The name, residence, and post office address of each of the initial
directors and following officers of the corporation are as follows:
NAME RESIDENCE POST OFFICE ADDRESS
H. Frederick Hagemann, Jr. 30 Woodman Rd. 225 Franklin Street
President: Newton, Mass. Boston, Mass. 02101
- -------------------------------------------------------------------------------
John T. G. Nichols Corn Point Rd. 225 Franklin Street
Treasurer: Marblehead, Mass. Boston, Mass. 02101
- -------------------------------------------------------------------------------
Eldon C. Swim 6 Nelson Rd. 225 Franklin Street
Clerk: Melrose, Mass. Boston, Mass. 02101
- -------------------------------------------------------------------------------
Directors:
H. Frederick Hagemann, Jr. (Same As Above)
George B. Rockwell 16 Salem Road 225 Franklin Street
Wellesley, Mass. Boston, Mass. 02101
John T. G. Nichols (Same As Above)
c. The date initially adopted on which the corporation's fiscal year ends
is:
December 31
d. The date initially fixed in the by-laws for the annual meeting of
stockholders of the corporation is:
Third Wednesday of April
e. The name and business address of the resident agent, if any, of the
corporation is:
None
IN WITNESS WHEREOF and under the penalties of perjury the above-named
INCORPORATOR(S) sign(s) these Articles of Organization this sixteenth
day of October, 1969.
/s/ H. Frederick Hagemann, Jr.
---------------------------------------
/s/ George B. Rockwell
---------------------------------------
/s/ John T.G. Nichols
---------------------------------------
The signature of each incorporator which is not a natural person must
be by an individual who shall show the capacity in which he acts and
by signing shall represent under the penalties of perjury that he is
duly authorized on its behalf to sign these Articles of Organization.
<PAGE>
Form CD-72. 25M-7-74-104070
THE COMMONWEALTH OF MASSACHUSETTS
Secretary of the Commonwealth
STATE HOUSE, BOSTON, MASS.
02133
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth within
sixty days after the date of the vote of stockholders adopting the amendment.
The fee for filing this certificate is prescribed by General Laws, Chapter 156B,
Section 114. Make check payable to the Commonwealth of Massachusetts.
We, Peter S. Maher , Senior/Vice President, and
Dean W. Harrison , Clerk
STATE STREET BOSTON FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02101
--------------------------------------------------------------------
do hereby certify that the following amendment to the articles of organization
of the corporation was duly adopted at a meeting held on April 20, 1977, by vote
of
1,664,380 shares of Common 2,280,323
- --------- ----------------- out of --------- shares outstanding,
(Class of Stock)
- -------- shares of ----------------- out of --------- shares outstanding, and
(Class of Stock)
- -------- shares of ----------------- out of --------- shares outstanding
(Class of Stock)
being at least a majority of each class outstanding and entitled to
vote thereon:
CROSS OUT
INAPPLICABLE
CLAUSE
(1) For amendments adopted pursuant to Chapter 156B, Section 72.
(2) For amendments adopted pursuant to Chapter 156B, Section 71.
NOTE: Amendments for which the space provided above is not sufficient should be
set on continuation sheets to be numbered 2A, 2B, etc. Continuation sheets
shall be on 8-1/2" wide x 11" high paper and must have a left-hand margin
1 inch wide for binding. Only one side should be used.
<PAGE>
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of the General
Laws unelss these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto
signed our names this
Twentieth day of April, in the year 1977
/s/ illegible Senior/Vice President
- ----------------------------
/s/ illegible
- ---------------------------- Clerk
<PAGE>
Form CD-74, 25M-6-66-942983
THE COMMONWEALTH OF MASSACHUSETTS
JOHN F. X. DAVOREN
Secretary of the Commonwealth
STATE HOUSE, BOSTON, MASS.
RESTATED ARTICLES OF ORGANIZATION
General Laws, Chapter 156B, Section 74
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
restated articles of organization. The fee for filing this certificate is
prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the
Commonwealth of Massachusetts.
We, George B. Rockwell , President and
Winthrop B. Walker , Clerk of
State Street Boston Financial Corporation
- -------------------------------------------------------------------------------
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02101
---------------------------------------------------------------
do hereby certify that the following restatement of the articles of organization
of the corporation was duly
adopted on June 11, 1970, by written consent of the holder of
100 Common Stock 100
- --------- shares of ----------------- out of --------- shares outstanding,
(Class of Stock)
- --------- shares of ----------------- out of --------- shares outstanding, and
(Class of Stock)
- --------- shares of ----------------- out of --------- shares outstanding
(Class of Stock)
being all of the stock outstanding and entitled to vote and of each class or
series of stock adversely affected thereby:
1. The name by which the corporation shall be known is:-
State Street Boston Financial Corporation
2. The purposes for which the corporation is formed are as follows:-
See Continuation Sheet 2A.
NOTE: Provisions for which the space provided under articles 2, 4, 5, and 6 is
not sufficient should be set out on continuation sheets to be numbered 2A,
2B, etc. Indicate under each article where the provision is set out.
Continuation sheets shall be on 8-1/2" wide x 11" high paper and must have
a left-hand margin 1 inch wide for binding. Only one side should be used.
3. The total number of shares and the part value, if any, of each class
of stock which the corporation is authorized to issue is as follows:
WITHOUT PAR VALUE WITH PAR VALUE
----------------- --------------
CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES PAR VALUE
- -------------- ---------------- ---------------- ---------
Preferred 700,000 0 ---
Common 0 3,500,000 $10
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting
powers, qualifications, special or relative rights or privileges as to
each class thereof and any series now established:
See Continuation Sheet 4A
*5. The restrictions, if any, imposed by the articles of organization upon
the transfer of shares of stock of any class are as follows:
None
*6. Other lawful provision, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary
dissolution, or for limiting, defining, or regulating the powers of
the corporation, or of its directors or stockholders, or of any class
of stockholders:
See Continuation Sheets 6A, 6B and 6C.
*If there are no such provisions, state "None".
To acquire, hold, dispose of and otherwise deal in and with securities
(including but not limited to stocks, shares, evidences of beneficial interest,
evidences of indebtedness and evidences of any right to subscribe for or
purchase or sell any thereof), and any interest therein, issued or created by or
evidencing or representing any interest in any one or more banks, trust
companies, other corporations, associations, trusts, firms, partnerships,
governments, governmental or political units, instrumentalities, subdivisions,
agencies or authorities, or other organizations, persons or entities, public or
private; and
To engage in any other lawful business or activity in which a corporation
organized under the Business Corporation Law of Massachusetts is permitted to
engage.
<PAGE>
The board of directors is authorized, subject to the
limitations prescribed by law and these articles, to divide the Preferred Stock
into two or more series and to establish and designate each series and fix and
determine the variations in the relative rights and preferences as between the
different series, provided that all shares of the Preferred Stock shall be
identical except that there may be variations fixed and so determined between
different series as to:
(a) The number of shares constituting each series and the distinctive
designation of that series;
(b) Whether or not the shares of any series shall be redeemable and, if
redeemable, the price (which may vary under different conditions and at
different redemption dates), the terms and the manner of redemption, including
the date or dates on or after which they shall be redeemable;
(c) The dividend rate on the shares of each series, the conditions and
dates upon which dividends thereon shall be payable, the extent, if any, to
which dividends thereon shall be cumulative, and the relative rights of
preference, if any, of payment of dividends thereon;
(d) The rights of each series on liquidation, voluntary or involuntary,
including dissolution or winding up of the corporation;
(e) The sinking fund or purchase fund provisions, if any, applicable to
each series, including without limitation the annual amount thereof and the
terms relating thereto;
(f) The conversion rights, if any, of each series, including the terms and
conditions of conversion, which terms and conditions may contain provisions for
adjustment of the conversion rate in such events as the board of directors shall
determine; and
(g) The conditions under which each series shall have separate voting
rights or no voting rights, in addltlon to the voting rights provided by law.
<PAGE>
By-laws
The board of directors is authorized to make, amend or repeal the by-laws
of the corporation in whole or in part, except with respect to any provision
thereof which by law, by these articles of organization or by the by-laws
requires action by the stockholders.
Place of Meetings of the Stockholders
Meetings of the stockholders may be held anywhere in the United States.
Partnership
The corporation may be a partner in any business enterprise which the
corporation would have power to conduct by itself.
Indemnification of Directors, Officers and Others
The corporation shall indemnify each person who is or was a director,
officer, employee or other agent of the corporation, and each person who is or
was serving at the request of the corporation as a director, trustee, officer,
employee or other agent of another organization in which it directly or
indirectly owns shares or of which it is directly or indirectly a creditor,
against all liabilities, costs and expenses, including but not limited to
amounts paid in satisfaction of judgments, in settlement or as fines and
penalties, and counsel fees and disbursements, reasonably incurred by him in
connection with the defense or disposition of or otherwise in connection with or
resulting from any action, suit or other proceeding, whether civil, criminal,
administrative or investigative, before any court or administrative or
legislative or investigative body, in which he may be or may have been involved
as a party or otherwise or with which he may be or may have been threatened,
while in office or thereafter, by reason of his being or having been such a
director, officer, employee, agent or trustee, or by reason of any action taken
or not taken in any such capacity, except with respect to any matter as to which
he shall have been finally adjudicated by a court of competent jurisdiction not
to have acted in good faith in the reasonable belief that his action
was in the best interests of the corporation. Expenses, including but not
limited to counsel fees and disbursements, so incurred by any such person in
defending any such action, suit or proceeding, may be paid from time to time by
the corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the person
indemnified to repay the amounts so paid it it shall ultimately be determined
that indemnification of such expenses is not authorized hereunder.
As to any matter disposed of by settlement by any such person, pursuant to
a consent decree or otherwise, no such indemnification either for the amount of
such settlement or for any other expenses shall be provided unless such
settlement shall be approved as in the best interests of the corporation, after
notice that it involves such indemnification, (a) by vote of a majority of the
disinterested directors then in office (even though the disinterested directors
be less than a quorum), or (b) by any disinterested person or persons to whom
the question may be referred by vote of a majority of such disinterested
directors, or (c) by vote of the holders of a majority of the outstanding stock
at the time entitled to vote for directors, voting as a single class, exclusive
of any stock owned by any interested person, or (d) by any disinterested person
or persons to whom the question may be referred by vote of the holders of a
majority of such stock. No such approval shall prevent the recovery from any
such officer, director, employee, agent or trustee of any amounts paid to him or
on his behalf as indemnification in accordance with the preceding sentence if
such person is subsequently adjudicated by a court of competent jurisdiction not
to have acted in good faith in the reasonable belief that his action was in the
best interests of the corporation.
The right of indemnification hereby provided shall not be exclusive of or
affect any other rights to which any director, officer, employee, agent or
trustee may be entitled or which may lawfully be granted to him. As used herein,
the terms "director", "officer", "employee", "agent" and "trustee" include their
respective executors, administrators and other legal representatives, an
"interested" person is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding on the same or similar
grounds is then or had been pending or threatened, and a "disinterested" person
is a person against whom no such action, suit or other proceeding is then or had
been pending or threatened.
By action of the board of directors, notwithstanding any interest of the
directors in such action, the corporation may purchase and maintain insurance,
in such amounts as the board of directors may from time to time deem
appropriate, on behalf of any person who is or was a director, officer, employee
or other agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee or other agent of another
organization in which it directly or indirectly owns shares or of which it is
directly or indirectly a creditor, against any liability incurred by him in any
such capacity, or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liability.
Intercompany Transactions
No contract or transaction between the corporation and one or more of its
directors or officers, or between the corporation and any other organization of
which one or more of its directors or officers are directors, trustees or
officers, or in which any of them has any financial or other interest, shall be
void or voidable, or in any way affected, solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board of directors or committee thereof which authorizes, approves or
ratifies the contract or transaction, or solely because his or their votes are
counted for such purpose, if:
(a) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the board of
directors or the committee which authorizes, approves or ratifies the
contract or transaction, and the board or committee in good faith
authorizes, approves or ratifies the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though
the disinterested directors be less than a quorum; or
(b) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically authorized, approved or ratified in good faith by vote of the
stockholders; or
(c) The contract or transaction is fair as to the corporation as
of the time it is authorized, approved or ratified by the board of
directors, a committee thereof, or the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the board of directors or of a committee thereof which
authorizes, approves or ratifies the contract or transaction. No director or
officer of the corporation shall be liable or accountable to the corporation or
to any of its stockholders or creditors or to any other person, either for any
loss to the corporation or to any other person or for any gains or profits
realized by such director or officer, by reason of any contract or transaction
as to which clauses (a), (b) or (c) above are applicable.
*We further certify that the foregoing restated articles of organization
effect no amendments to the articles of organization of the corporation as
heretofore amended, except amendments to the following articles 3 and 4.
(*If there are no such amendments, state "None".)
Article Three is amended by increasing the authorized capital stock of this
corporation by
(a) 3,485,000 shares of Common Stock, $10 par value, to a total of
3,500,000 shares; and
(b) 700,000 shares of Preferred Stock, without par value.
Article Four is amended by the addition of provisions authorizing the Board of
Directors to divide the Preferred Stock into two or more series and to establish
and designate each series and fix and determine the variations in the relative
rights and preferences as between the different series.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 11th day of June in the year 1970.
[ILLEGIBLE] President
[ILLEGIBLE] Clerk
<PAGE>
FORM CD-72-30M 10-79 152328
[ILLEGIBLE] FEDERAL IDENTIFICATION
- --------------
Examiner NO. 04-2456637
THE COMMONWEALTH OF MASSACHUSETTS
MICHAEL JOSEPH CONNOLLY
Secretary of State
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
amendment. The fee for filing this certificate is prescribed by General Laws,
Chapter 156B, Section 114. Make check payable to the Commonwealth of
Massachusetts.
__________
We, Robert J. Malley Senior Vice President, and
Christoph H. Schmidt Clerk of
STATE STREET BOSTON CORPORATION
...............................................................................
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02110
- -------------
Name Approved
do hereby certify that the following amendments to the articles of organization
of the corporation was duly adopted at a meeting held on April 21, 1982, by
vote of 1,315,382 shares of Common Stock out of 2,111,476 shares outstanding,
on Vote (Class of Stock)
1,089,224 shares of Common Stock out of 2,111,476 shares outstanding, on Vote
(Class of Stock)
CROSS OUT being at least a majority of each class outstanding and entitled
INAPPLICABLE to vote thereon:(1)
CLAUSE
(Vote 1) VOTED: That Article 3 of the Articles of Organization of this
C [ ] Corporation is hereby amended to increase the number of authorized
P [ ] shares of Common Stock, $10 par value, of the Corporation from
M [ ] 3,500,000 to 7,000,000; and that the Board of Directors be and it
hereby is authorized to issue any and all of the authorized but
unissued shares of the Common Stock, $10 par value, of this
Corporation at such time or times, to such persons, and for such
lawful consideration, including cash, tangible or intangible
property, services or expenses, or as stock dividends, as may be
determined from time to time by the Board of Directors.
(1) For amendments adopted pursuant to Chapter 156B Section 70.
(2) For amendments adopted pursuant to Chapter 156B Section 71.
[ILLEGIBLE]
_______ Note: If the space provided under any Amendment or item on this form
P.C. is insufficient, additions shall be set forth on separate 8 1/2 x 11
sheets of paper leaving a left hand margin of at least 1 inch for
binding. Additions to more than one Amendment may be continued on a
single sheet so long as each Amendment requiring each such addition
is clearly indicated.
<PAGE>
FOR INCREASE IN CAPITAL FILL IN THE FOLLOWING:
| -0- shares preferred |
| | with par value
| 3,500,000 shares common |
The total amount of capital |
stock already authorized is |
| 700,000 shares preferred |
| | without par value
| -0- shares common |
| -0- shares preferred |
| | with par value
| 3,500,000 shares common |
The amount of additional |
capital stock authorized is |
| 2,800,000 shares preferred |
| | without par value
| -0- shares common |
(Vote 2) VOTED: That Article 3 of the Articles of Organization of this
Corporation is hereby amended to increase the number of authorized
shares of Preferred Stock, no par value, of the Corporation from
700,000 to 3,500,000; and that the Board of Directors be and it
hereby is authorized to issue any and all of the authorized but
unissued shares of the Preferred Stock, no par value, of this
Corporation at such time or times, to such persons, and for such
lawful consideration, including cash, tangible or intangible
property, services or expenses, or as stock dividends, as may be
determined from time to time by the Board of Directors.
The foregoing amendments will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed
our names this eleventh day of May, in year 1982.
Robert J. Malley Senior Vice President
Christoph H. Schmidt Clerk
<PAGE>
C24 |
| $75
C25 |
FORM CD-72-30M 10-79 152328
[ILLEGIBLE]
________ FEDERAL IDENTIFICATION
Examiner NO. 04-2456637
THE COMMONWEALTH OF MASSACHUSETTS
MICHAEL JOSEPH CONNOLLY
Secretary of State
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
amendment. The fee for filing this certificate is prescribed by General Laws,
Chapter 156B, Section 114. Make check payable to the Commonwealth of
Massachusetts. __________ We, William S. Edgerly President, and Robert J. Malley
Secretary of
State Street Boston Corporation
...............................................................................
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02101
- -------------
Name Approved
do hereby certify that the following amendment to the articles of organization
of the corporation was duly adopted at a meeting held on April 20, 1983, by
vote of 3,223,000 shares of Common Stock $10.00 par value out of 4,311,465
shares outstanding, (Class of Stock)
_________ shares of _____________________________ out of _________ shares
outstanding, and (Class of Stock)
_________ shares of _____________________________ out of _________ shares
outstanding, (Class of Stock)
CROSS OUT being at least a majority of each class outstanding and entitled
INAPPLICABLE to vote thereon:(2)
CLAUSE
"VOTED: That Article 3 of the Corporation's Articles of Organization be
C [ ] amended to change the authorized common stock from 7,000,000 shares
P [ ] having a par value of $10.00 per share to 14,000,000 shares having
M [ ] a par value of $1.00 per share; and that the Board of Directors be
and it hereby is authorized to issue any and all of the authorized
but unissued shares of the Common Stock, $1 par value, of this
Corporation at such time or times, to such persons, and for such
lawful consideration, including cash, tangible or intangible
property, services or expenses, or as stock dividends, as may be
determined from time to time by the Board of Directors.
(1) For amendments adopted pursuant to Chapter 156B Section 70.
(2) For amendments adopted pursuant to Chapter 156B Section 71.
3
- ------- Note: If the space provided under any Amendment or item on this form
P.C. is insufficient, additions shall be set forth on separate 8 1/2 x 11
sheets of paper leaving a left hand margin of at least 1 inch for
binding. Additions to more than one Amendment may be continued on a
single sheet so long as each Amendment requiring each such addition
is clearly indicated.
<PAGE>
FOR INCREASE IN CAPITAL FILL IN THE FOLLOWING:
| __________ shares preferred |
| | with par value
| __________ shares common |
The total amount of capital |
stock already authorized is |
| __________ shares preferred |
| | without par value
| __________ shares common |
| __________ shares preferred |
| | with par value
| __________ shares common |
The amount of additional |
capital stock authorized is |
| __________ shares preferred |
| | without par value
| __________ shares common |
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed
our names this 21st day of April, in year 1983.
William S. Edgerly President
Robert J. Malley Secretary
<PAGE>
FORM CD-72-3/83 172595
[ILLEGIBLE]
________ FEDERAL IDENTIFICATION
Examiner NO. 04-2456637
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, SECRETARY
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
amendment. The fee for filing this certificate is prescribed by General Laws,
Chapter 156B, Section 114. Make check payable to the Commonwealth of
Massachusetts.
__________
We, William S. Edgerly President, and
Robert J. Malley Secretary & Clerk of
STATE STREET BOSTON CORPORATION
...............................................................................
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02101
- -------------
Name Approved
do hereby certify that the following amendment to the articles of organization
of the corporation was duly adopted at a meeting held on April 17, 1985, by
vote of 6,669,209 shares of Common Stock $1 par value out of 8,241,453 shares
outstanding, (Class of Stock)
_________ shares of _________________________ out of _________ shares
outstanding, and (Class of Stock)
_________ shares of _________________________ out of _________ shares
outstanding, (Class of Stock)
CROSS OUT being at least a majority of each class outstanding and entitled
INAPPLICABLE to vote thereon:(2)
CLAUSE
"VOTED: That Article 3 of the Articles of Organization be amended to change
C [ ] the authorized number of shares of Common Stock of the Corporation,
P [ ] $1 par value, from 14 million to 28 million."
M [ ]
(1) For amendments adopted pursuant to Chapter 156B Section 70.
(2) For amendments adopted pursuant to Chapter 156B Section 71.
[ILLEGIBLE]
- ------- Note: If the space provided under any Amendment or item on this form
P.C. is insufficient, additions shall be set forth on separate 8 1/2 x 11
sheets of paper leaving a left hand margin of at least 1 inch for
binding. Additions to more than one Amendment may be continued on a
single sheet so long as each Amendment requiring each such addition
is clearly indicated.
<PAGE>
TO CHANGE the number of shares and the par value, if any, of each class of stock
within the corporation fill in the following:
The total presently authorized is:
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON -0- 14,000,000 $1
- -------------------------------------------------------------------------------
PREFERRED 3,500,000 -0-
- -------------------------------------------------------------------------------
CHANGE the total to:
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON -0- 28,000,000 $1
- -------------------------------------------------------------------------------
PREFERRED 3,500,000 -0-
- -------------------------------------------------------------------------------
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed
our names this 25th day of April, in year 1985
William S. Edgerly President
Robert J. Malley Secretary & Clerk
<PAGE>
FORM CD-72-30M 3/83-172595
[illegible] FEDERAL IDENTIFICATION
Examiner NO. 04-2456637
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, SECRETARY
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
amendment. The fee for filing this certificate is prescribed by General Laws,
Chapter 156B, Section 114. Make check payable to the Commonwealth of
Massachusetts.
__________
We, David A. Spina Executive Vice President, and
Robert J. Malley Secretary & Clerk of
STATE STREET BOSTON CORPORATION
...............................................................................
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02101
- -------------
Name Approved
do hereby certify that the following amendment to the articles of organization
of the corporation was duly adopted at a meeting held on April 16, 1986, by
vote of 14,092,857 shares of Common Stock out of 17,216,198 shares outstanding,
(Class of Stock)
_________ shares of _________________________ out of _________ shares
outstanding, and (Class of Stock)
_________ shares of _________________________ out of _________ shares
outstanding, (Class of Stock)
CROSS OUT being at least a majority of each class outstanding and entitled
INAPPLICABLE to vote thereon:(2)
CLAUSE
"VOTED: That Article 3 of the Articles of Organization be amended to
C [ ] increase the authorized number of shares of Common Stock of the
P [ ] Corporation, $1 par value, from 28 million to 56 million."
M [ ]
(1) For amendments adopted pursuant to Chapter 156B Section 70.
(2) For amendments adopted pursuant to Chapter 156B Section 71.
[illegible] Note: If the space provided under any Amendment or item on this form
- ----------- is insufficient, additions shall be set forth on separate 8 1/2 x 11
P.C. sheets of paper leaving a left hand margin of at least 1 inch for
binding. Additions to more than one Amendment may be continued on a
single sheet so long as each Amendment requiring each such addition
is clearly indicated.
<PAGE>
TO CHANGE the number of shares and the par value, if any, of each class of stock
within the corporation fill in the following:
The total presently authorized is:
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON -0- 28,000,000 $1
- -------------------------------------------------------------------------------
PREFERRED 3,500,000 -0-
- -------------------------------------------------------------------------------
CHANGE the total to:
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON -0- 56,000,000 $1
- -------------------------------------------------------------------------------
PREFERRED 3,500,000 -0-
- -------------------------------------------------------------------------------
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed
our names this 9th day of May, in year 1986
David A. Spina Executive Vice President
Robert J. Malley Clerk and Secretary
<PAGE>
030 = $75
FORM CD-72-30M-4/86-808881
[illegible]
- ------------ FEDERAL IDENTIFICATION
Examiner NO. 04-2456637
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, SECRETARY
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
amendment. The fee for filing this certificate is prescribed by General Laws,
Chapter 156B, Section 114. Make check payable to the Commonwealth of
Massachusetts.
__________
We, David A. Spina Executive Vice President, and
Robert J. Malley Secretary & Clerk of
STATE STREET BOSTON CORPORATION
...............................................................................
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02101
- -------------
Name Approved
do hereby certify that the following amendment to the articles of organization
of the corporation were duly adopted at a meeting held on April 15, 1987, by
vote of 27,682,822 shares of Common Stock out of 35,116,000 shares outstanding,
Amendment #1 (Class of Stock)
27,501,803 shares of Common Stock out of 35,116,000 shares outstanding,
Amendment #2 (Class of Stock)
shares of out of shares outstanding,
- ----------- ---------------- ----------------
(Class of Stock)
CROSS OUT being at least two-thirds of each class outstanding and entitled
INAPPLICABLE to vote thereon and of each class or series of stock whose rights
CLAUSE are adversely affected thereby:(2)
Amendment #1
"VOTED: That Article 6 of the Corporation's Articles of Organization be
C [ ] amended to add the following new paragraph pursuant to the Business
P [ ] Corporation of Massachusetts:
M [ ] (See Continuation Sheet 1A, attached)
(1) For amendments adopted pursuant to Chapter 156B Section 70.
(2) For amendments adopted pursuant to Chapter 156B Section 71.
[illegible] Note: If the space provided under any Amendment or item on this form
- ----------- is insufficient, additions shall be set forth on separate 8 1/2 x 11
P.C. sheets of paper leaving a left hand margin of at least 1 inch for
binding. Additions to more than one Amendment may be continued on a
single sheet so long as each Amendment requiring each such addition
is clearly indicated.
<PAGE>
TO CHANGE the number of shares and the par value, if any, of each class of stock
within the corporation fill in the following:
The total presently authorized is:
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON
- -------------------------------------------------------------------------------
PREFERRED
- -------------------------------------------------------------------------------
CHANGE the total to:
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON
- -------------------------------------------------------------------------------
PREFERRED
- -------------------------------------------------------------------------------
STATE STREET BOSTON CORPORATION
Continuation Sheet 1A
Amendment #1 (continued)
"Liability of Directors
A director of this corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director notwithstanding any provision of law imposing such liability,
provided, however, that this paragraph of Article Six shall not eliminate the
liability of a director to the extent such liability is imposed by applicable
law (i) for any breach of the director's duty of loyalty to this corporation or
its stockholders. (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for any transaction
from which the director derived an improper personal benefit, or (iv) for paying
a dividend, approving a stock repurchase or making loans which are illegal under
certain provisions of Massachusetts law, as the same exists or hereafter may be
amended. If Massachusetts law is hereafter amended to authorize the further
limitation of the legal liability of the directors of this corporation, the
liability of the directors shall then be deemed to be limited to the fullest
extent then permitted by Massachusetts law as so amended. Any repeal or
modification of this paragraph of this Article Six which may hereafter be
effected by the stockholders of this corporation shall be prospective only, and
shall not adversely affect any limitation on the liability of a director for
acts or omissions prior to such repeal or modification."
<PAGE>
CONTINUATION SHEET 2A
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
The corporation shall to the fullest extent legally permissible
indemnify each person who is or was a director, officer, employee or other agent
of the corporpation and each person who is or was serving at the request of the
corporation as a director, trustee, officer, employee or other agent of another
corporation or of any partnership, joint venture, trust, employee benefit plan
or other enterprise or organization against all liabilities, costs and expenses,
including but not limited to amounts paid in satisfaction of judgments, in
settlement or as fines and penalties, and counsel fees and disbursements,
reasonably incurred by him in connection with the defense or disposition of or
otherwise in connection with or resulting from any action, suit or other
proceeding, whether civil, criminal, administrative or investigative, before any
court or administrative or legislative or investigative body, in which he may be
or may have been involved as a party or otherwise or with which he may be or may
have been threatened, while in office or thereafter, by reason of his being or
having been such a director, officer, employee, agent or trustee, or by reason
of any action taken or not taken in any such capacity, except with respect to
any matter as to which he shall have been finally adjudicated by a court of
competent jurisdiction not to have acted in good faith in the reasonable belief
that his action was in the best interests of the corporation (any person serving
another organization in one or more of the indicated capacities at the request
of the corporation who shall not have been adjudicated in any proceeding not to
have acted in good faith in the reasonable belief that his action was in the
best interest of such other organization shall be deemed so to have acted in
good faith with respect to the corporation) or to the extent that such matter
relates to service with respect to an employee benefit plan, in the best
interest of the participants or beneficiaries of such employee benefit plan.
Expenses, including but not limited to counsel fees and disbursements, so
incurred by any such person in defending any such action, suit or proceeding,
shall be paid from time to time by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the person indemnified to repay the amounts so paid if it shall
ultimately be determined that indemnification of such expenses is not authorized
hereunder.
If, in an action, suit or proceeding brought by or in the name of the
corporation, a director of the corporation is held not liable for monetary
damages, whether because that director is relieved of personal liability under
the provisions of this Article Six of the Articles of Organization, or
otherwise, that director shall be deemed to have met the standard of conduct set
forth above and to be entitled to indemnification for expenses reasonably,
incurred in the defense of such action, suit or proceeding.
As to any matter disposed of by settlement by any such person, pursuant
to a consent decree or otherwise, no such indemnification either for the amount
of such settlement or for any other expenses shall be provided unless such
settlement shall be approved as in the best interests of the corporation, after
notice that it involves such indemnification, (a) by vote of a majority of the
disinterested directors then in office (even though the disinterested directors
be less than a quorum), or (b) by any disinterested person or persons to whom
the question may be referred by vote of a majority of such disinterested
directors, or (c) by vote of the holders of a majority of the outstanding stock
at the time entitled to vote for directors, voting as a single class, exclusive
of any stock owned by any interested person, or (d) by any disinterested person
or persons to whom the question may be referred by vote of the holders of a
majority of such stock. No such approval shall prevent the recovery from any
such director, officer, employee, agent or trustee of any amounts paid to him or
on his behalf as indemnification in accordance with the preceding sentence if
such person is subsequently adjudicated by a court of competent jurisdiction not
to have acted in good faith in the reasonable belief that his action was in the
best interests of the corporation.
The right of indemnification hereby provided shall not be exclusive of or
affect any other rights to which any director, officer, employee, agent or
trustee may be entitled or which may lawfully be granted to him. As used herein,
the terms "director", "officer", "employee", "agent" and "trustee" include their
respective executors, administrators and other legal representatives, an
"interested" person is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding on the same or similar
grounds is then or had been pending or threatened, and a "disinterested" person
is a person against whom no such action, suit or other proceeding is then or had
been pending or threatened.
By action of the board of directors, notwithstanding any interest of the
directors in such action, the corporation may purchase and maintain insurance,
in such amounts as the board of directors may from time to time deem
appropriate, on behalf of any person who is or was a director, officer, employee
or other agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee or other agent of another
corporation or of any partnership, joint venture, trust, employee benefit plan
or other enterprise or organization against any liability incurred by him in any
such capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability.
<PAGE>
Amendment #2
"VOTED: That Article 6 of the Articles of Organization be further
amended and restated with respect to indemnification to
read as follows:
(See Continuation Sheet 2A, attached)
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto
signed our names this twenty-fourth day of April, in the year 1987.
[Illegible] Executive/Vice President
[Illegible] Clerk
<PAGE>
027
Form CD-26-3M-8-83
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
[Illegible] MICHAEL JOSEPH CONNOLLY, SECRETARY
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
FEDERAL IDENTIFICATION
NO. 04-456637
CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING
A SERIES OF A CLASS OF STOCK
General Laws, Chapter 156B, Section 26
--------
We, Robert J. Malley Vice President, and
Robert J. Malley , Clerk of
STATE STREET BOSTON CORPORATION
- ------------------------------------------------------------------------------
(Name of Corporation)
located at 225 Franklin Street, Boston, MA 02110
---------------------------------------------------
do hereby certify that at a meeting of the directors of the corporation held on
September 15, 1988, the following vote establishing and designating a series of
a class of stock and determining the relative rights and preferences thereof was
duly adopted:
See continuation sheets numbered 2A through 2A-7
NOTE: Votes for which the space provided above is not sufficient should be set
out on continuation sheets to be numbered 2A, 2B, etc. Continuation sheets must
have a left-hand margin 1 inch wide for binding and shall be 8-1/2" x 11". Only
one side should be used.
<PAGE>
VOTED: That pursuant to the authority granted to and vested in the
Board of Directors in accordance with the provisions of the
Articles of Organization, as amended to date, the Board of
Directors hereby creates a series of Preferred Stock, without
par value, of the Corporation and hereby states the designation
and number of shares, and fixes the relative rights, preferences
and limitations thereof (in addition to the provisions set forth
in the Articles of Organization which are applicable to the
Preferred Stock of all classes and series), as set forth in the
Certificate of Designation, Preferences and Rights comprising
Exhibit A to the Rights Agreement, which is attached hereto and
incorporated herein by reference; and
<PAGE>
Exhibit_A
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
STATE STREET BOSTON CORPORATION
(Pursuant to Section 26 of the
Massachusetts Business Corporation Law)
State Street Boston Corporation, a corporation organized and existing under
the Business Corporation Law of the Commonwealth of Massachusetts (hereinafter
called the "Corporation"), hereby certifies that the following resolution was
adopted by the Board of Directors of the Corporation as required by Section 26
of the Business Corporation Law at a meeting duly called and held on September
15, 1988:
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of this Corporation (hereinafter called the "Board of Directors" or
the "Board") in accordance with the provisions of the Articles of Organization,
the Board of Directors hereby creates a series of Preferred Stock, without par
value (the "Preferred Stock"), of the Corporation and hereby states the
designation and number of shares, and fixes the relative rights, preferences,
and limitations thereof (in addition to any provisions set forth in the Articles
of Organization of the Corporation which are applicable to the Preferred Stock
of all classes and series) as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 400,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the
Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock, in preference to the holders of Common Stock, $1
par value (the "Common Stock"), of the Corporation, and of any other junior
stock, shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of March, June, September and December in
each year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of Series A Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the
greater of (a) $1 or (b) subject to the provision for adjustment hereinafter
set forth, 100 times the aggregate per share amount of all cash dividends,
and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions, other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock since
the immediately preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event the
Corporation shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case
the amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Series
A Preferred Stock as provided in paragraph (A) of this Section immediately
after it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during
the period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1 per share on the Series A
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the
date of issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either
of which events such dividends shall begin to accrue and be cumulative from
such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not
bear interest. Dividends paid on the shares of Series A Preferred Stock in an
amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix
a record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the date
fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to 100
votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or effect
a subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled immediately prior
to such event shall be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Series A Preferred Stock and the holders of
shares of Common Stock and any other capital stock of the Corporation having
general voting rights shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law, holders
of Series A Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on any
shares of stock ranking junior (either as to dividends or upon liqui-
dation, dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock, provided that
the Corporation may at any time redeem, purchase or otherwise acquire
shares of any such junior stock in exchange for shares of any stock of the
Corporation ranking junior (either as to dividends, or upon dissolution,
liquidation or winding up) to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section
4, purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Articles of Organization, or in any other Certificate of Designations creating a
series of Preferred Stock or any similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series A Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount to be
distributed per share to holders of shares of Common Stock, or (2) to the
holders of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up. In the
event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under the proviso in clause
(1) of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall not
be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank junior with
respect to the payment of dividends and the distribution of assets to all other
series of the Corporation's Preferred Stock.
Section 10. Amendment. The Articles of Organization of the Corporation
shall not be amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series A Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
<PAGE>
024
FORM CD-72-30M-4/86-808881
[Illegible] FEDERAL IDENTIFICATION
- ---------
Examiner NO. 04-2456637
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, SECRETARY
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
amendment. The fee for filing this certificate is prescribed by General Laws,
Chapter 156B, Section 114. Make check payable to the Commonwealth of
Massachusetts.
__________
We, Marshall N. Carter President, and
Robert J. Malley Clerk of
State Street Boston Corporation
...............................................................................
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02210
[Illegible]
- -------------
Name Approved
do hereby certify that the following amendment to the articles of organization
of the corporation was duly adopted at a meeting held on April 15, 1992, by
vote of 31,180,121 shares of Common Stock out of 37,248,358 shares outstanding,
(Class of Stock)
shares of out of shares outstanding, and
(Class of Stock)
shares of out of shares outstanding,
(Class of Stock)
CROSS OUT being at least a majority of each class outstanding and entitled
INAPPLICABLE to vote thereon:(2)
CLAUSE
"VOTED: That Article 3 of the Restated Articles of Organization be
C [ ] amended to increase the authorized number of shares of Common Stock,
P [ ] $1 par value, from 56 million to 112 million, and to authorize the
M [ ] Board of Directors to issue such shares from time to time for general
corporate purposes."
(1) For amendments adopted pursuant to Chapter 156B Section 70.
(2) For amendments adopted pursuant to Chapter 156B Section 71.
[Illegible] Note: If the space provided under any Amendment or item on this
- ----------- form is insufficient, additions shall be set forth on separate
P.C. 8 1/2 x 11 sheets of paper leaving a left hand margin of at least 1
inch for binding. Additions to more than one Amendment may be
continued on a single sheet so long as each Amendment requiring
each such addition is clearly indicated.
<PAGE>
TO CHANGE the number of shares and the par value, if any, of each class of stock
within the corporation fill in the following:
The total presently authorized is:
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON -0- 56,000,000 $1
- -------------------------------------------------------------------------------
PREFERRED 3,500,000 -0-
- -------------------------------------------------------------------------------
CHANGE the total to:
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------
COMMON -0- 112,000,000 $1
- -------------------------------------------------------------------------------
PREFERRED 3,500,000 -0-
- -------------------------------------------------------------------------------
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed
our names this 22nd day of April, in year 1992
Marshall N. Carter President
Robert J. Malley Clerk
<PAGE>
The Commonwealth of Massachusetts
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
We, David A. Spina, President and John R. Towers, Clerk of State Street Boston
Corporation located at 225 Franklin Street, Boston, MA 02110 certify that these
Articles of Amendment affecting articles numbered: Articles 1 and 3 of the
Articles of Organization, were duly adopted at a meeting held on April 16, 1997,
by vote of: 67,456,754 shares of Common Stock of 80,515,785 shares outstanding
on Vote 11, 66,278,074 shares of Common Stock of 80,515,785 shares outstanding
on Vote 21 being at least a majority of each type, class or series outstanding
and entitled to vote thereon.
See Continuation Sheet.
1 For amendments adopted pursuant to Chapter 156B, section 70.
<PAGE>
CONTINUATION SHEET
(Vote 1) VOTED: That Article 1 of the Restated Articles or Organization be
------ amended to change the name of the Corporation from State
Street Boston Corporation to State Street Corporation.
(Vote 2) VOTED: That Article 3 of the Restated Articles of Organization be
------ amended to increase the number of authorized shares of
Common Stock, $1 par value, from 112,000,000 to 250,000,000,
and to authorize the issuance from time to time of the
authorized and unissued shares of the Corporation by the
Board of Directors.
To change the number of shares and par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- ---------------------------------------------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------- ----------------------------------- ------------- ------------------------------ --------------------
<S> <C> <C> <C> <C>
Common: -0- Common: 112,000,000 $1
- --------------- ----------------------------------- ------------- ------------------------------ --------------------
Preferred: 3,500,000 Preferred: -0-
- --------------- ----------------------------------- ------------- ------------------------------ --------------------
Change the total authorized to:
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- ---------------------------------------------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------- ----------------------------------- ------------- ------------------------------ --------------------
<S> <C> <C> <C> <C>
Common: -0- Common: 250,000,000 $1
- --------------- ----------------------------------- ------------- ------------------------------ --------------------
Preferred: 3,500,000 Preferred: -0-
- --------------- ----------------------------------- ------------- ------------------------------ --------------------
</TABLE>
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment/after effective date not more than thirty days after such filing, in
which event the amendment will become effective on such later date.
Later effective date:
SIGNED UNDER THE PENALTIES OF PERJURY, this 16th day of April, 1997,
/s/ David A. Spina, President
/s/ John R. Towers, Clerk
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(GENERAL LAWS, CHAPTER 156B, SECTION 72)
- -------------------------------------------------------------------------------
I hereby approve the within Articles of Amendment and the filing fee in the
amount of $138,100 having been paid, said articles are deemed to have been filed
with me this 16th day of April 1997.
Effective date: April 16, 1997
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
John R. Towers, Clerk
State Street Corporation
225 Franklin Street
Boston, MA 02110
<PAGE>
EXHIBIT 4.13
INSTRUMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE, dated as of June 26, 1997
among State Street Corporation, duly organized and existing under the laws of
the Commonwealth of Massachusetts having its principal office at 225 Franklin
Street, Boston, Massachusetts (the "Company"), Fleet National Bank, a banking
corporation duly organized under the laws of the United States and having its
principal corporate trust office at One Federal Street, Boston, Massachusetts
(the "Resigning Trustee") and First Trust National Association, a national
banking association, having its principal corporate trust office at 180 East
Fifth Street, Saint Paul, Minnesota, 55101 (the "Successor Trustee").
RECITALS
A. There are presently issued and outstanding $100,000,000 of the Company's
5.95% Notes due September 15, 2003 and $150,000,000 of the Company's 7.35%
Notes due June 15, 2026 under an Indenture, dated as of August 2, 1993 (the
"Indenture"), between the Company and The First National Bank of Boston as
previous Trustee.
B. The Resigning Trustee wishes to resign as Trustee under the Indenture; the
Company wishes to appoint the Successor Trustee to succeed the Resigning
Trustee as Trustee under the Indenture; and the Successor Trustee wishes to
accept appointment as Trustee under the Indenture.
NOW THEREFORE, the Company, the Resigning Trustee and the Successor Trustee
agree as follows:
ARTICLE ONE: THE RESIGNING TRUSTEE
Section 101. Pursuant to Section 610 of the Indenture, the Resigning Trustee
hereby notifies the Company that the Resigning Trustee has resigned as Trustee
under the Indenture.
Section 102. The Resigning Trustee hereby represents and warrants to the
Successor Trustee that:
a) To the best of the knowledge of the Responsible Officers of the Resigning
Trustee assigned to its Corporate Trust Department, no Event of Default and
no event which, after notice or lapse of time or both, would become an
Event of Default, had occurred and is continuing under the Indenture;
b) No covenant or condition contained in the Indenture has been waived by the
Resigning Trustee or by the Holders of the percentage in aggregate
principal amount of the Securities required by the Indenture to effect any
such waiver; and
c) There is no action, suit or proceeding pending or, to the best of the
knowledge of the Responsible Officers of the Resigning Trustee assigned to
its Corporate Trust Department, threatened against the Resigning Trustee
before any court or governmental authority arising out of any action or
omission by the Resigning Trustee as Trustee under the Indenture.
d) It assumes continued responsibility for its actions or omissions during its
term as Trustee under the Indenture.
Section 103. The resigning Trustee hereby assigns, transfers, delivers and
confirms to the Successor Trustee all right, title and interest of the Resigning
Trustee in and to the trust under the Indenture and all the rights, powers and
trusts of the Trustee under the Indenture. The Resigning Trustee shall execute
and deliver such further instruments and shall do such other things as the
Successor Trustee may reasonably require so as to more fully and certainly vest
and confirm in the Successor Trustee all the rights, trusts and powers hereby
assigned, transferred, delivered and confirmed to the Successor Trustee.
ARTICLE TWO: THE COMPANY
Section 201. The Company hereby certifies that the person signing this
Instrument on behalf of the Company is authorized to, among other things ( a )
accept the Resigning Trustee's resignation as Trustee under the Indenture; ( b )
appoint the Successor Trustee as Trustee under the Indenture; and ( c ) execute
and deliver such agreements and other instruments as may be necessary or
desirable to effectuate the succession of the Successor Trustee as Trustee under
the Indenture.
Section 202. The company hereby appoints the Successor Trustee as Trustee under
the Indenture and confirms to the Successor Trustee all the rights, trusts and
powers hereby assigned, transferred, delivered and confirmed to the Successor
Trustee.
ARTICLE THREE: THE SUCCESSOR TRUSTEE
Section 301. The Successor Trustee hereby represents and warrants to the
Resigning Trustee and to the Company that the Successor Trustee is qualified and
eligible under the provisions of Section 609 of the Indenture.
Section 302. The Successor Trustee hereby accepts its appointment as trustee
under the Indenture and shall hereby be vested with all the rights, powers,
trusts and duties of the Trustee under the Indenture.
ARTICLE FOUR: MISCELLANEOUS
Section 401. Except as otherwise expressly provided or unless the context
otherwise requires, all terms used herein which are defined in the Indenture
shall have the meanings assigned to the Indenture.
Section 402. This Instrument and the resignation, appointment and acceptance
effected hereby shall be effective as of the opening of business on the date
first above written upon the execution and delivery hereof by each of the
parties hereto.
Section 403. Notwithstanding the resignation of the Resigning Trustee effected
hereby, the Company shall remain obligated under Section 607 of the Indenture to
compensate, reimburse and indemnify the Resigning Trustee in connection with its
trusteeship under the Indenture.
Section 404. The Instrument shall be governed by and constructed in accordance
with the laws of the jurisdiction which govern the Indenture and its
construction.
Section 405. This instrument may be executed in any number of counterparts each
of which shall be an original, but such counterparts shall together constitute
but one and the same instrument.
IN WITNESS WHEREOF, the parties hereby have caused this Instrument of
Resignation, Appointment and Acceptance to be duly executed and their respective
seals to be affixed hereunto and duly attested all as of the day and year first
above written.
Attest: _______________ State Street Corporation (the "Company")
By: /s/ Stanley W. Shelton
Attest: _______________ Fleet National Bank (the "Resigning
Trustee")
By: /s/ R J Dunn
Attest: _______________ First Trust National Association (the
"Successor Trustee")
By: /s/ K Barrett
<PAGE>
EXHIBIT 10.17
AMENDMENT NO. 2 TO THE
STATE STREET CORPORATION 1997 EQUITY INCENTIVE PLAN
Amendment No. 2 to the State Street Corporation 1997 Equity Incentive Plan (the
"Plan").
RECITAL
The Executive Compensation Committee of the Board of Directors has approved the
following amendments to the Plan:
1. Clause (a) of the second paragraph of Section 2 of the Plan is
amended and clarified, effective as of the original effective date of
the Plan, to read as follows: "(a) grant Awards to such eligible
persons and at such time or times as it may choose;"
2. Section 2 of the plan, is further amended, as of the date set forth
below, by adding thereto the following new paragraph:
"The Committee may delegate to any officer or officers of the
Corporation the authority to exercise the authority described
at clauses (a) through (g) of the preceding paragraph with
respect to any Award to a person who at the time of the Award
is not and in the reasonable determination of the officer or
officers exercising such authority with respect to such Award
is not expected to be an executive officer of the Company or a
person otherwise described in Section 162 (m) (3) of the Code
or the regulations thereunder."
3. Except as amended above, the Plan remains in full force and effect.
IN WITNESS WHEREOF, State Street Corporation has caused this instrument of
amendment to be executed by its duly authorized officer this 3rd day of March,
1998.
STATE STREET CORPORATION
By: /s/ Trevor Lukes
Name: Trevor Lukes
Title: Senior Vice President
<PAGE>
EXHIBIT 10.18
DESCRIPTION OF 1997 DEFERRED STOCK AWARDS TO NON-EMPLOYEE DIRECTORS
In July 1997, State Street Corporation, by vote of its Board of Directors,
awarded to each non-employee director in office on April 16, 1997 the right to
receive 260 shares of Common Stock (the number of shares obtained by dividing
one-half of the annual retainer of each director by the closing price of a share
of the Corporation's stock on July 1, 1997), which shares will be issued to the
director following the date he or she ceases to be a director of the Corporation
(or, if so elected by an individual director, on a later date, but not more than
10 years after the individual ceases to be a director). Rights to receive an
aggregate of 3,900 shares were awarded.
The deferred shares so awarded are subject to adjustment in the event of a
capitalization change at State Street, and are credited with notional dividends.
The terms of the award are administered by the Board of Directors, which may, at
any time, vote to accelerate the issuance of the deferred shares to a director.
DESCRIPTION OF 1997 STOCK ISSUANCES IN LIEU OF CASH RETAINER FOR NON-EMPLOYEE
DIRECTORS
Directors of the Corporation who are not employees received an annual retainer
in 1997 of $25,000, payable at the election of the director in cash or in shares
of Common Stock of the Corporation. All non-employee directors elected to
receive payment of their 1997 annual retainer in shares of Common Stock. An
aggregate of 10,780 shares were issued in 1997.
<PAGE>
<TABLE>
EXHIBIT 12.1
RATIO OF EARNINGS TO FIXED CHARGES
<CAPTION>
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(A) Excluding interest on deposits:
Earnings:
Income before income taxes $ 568 $ 453 $ 370 $ 343 $ 292
Fixed charges 613 477 495 267 184
------ ------ ------ ----- -----
Earnings as adjusted $1,181 $ 930 $ 865 $ 610 $ 476
====== ====== ====== ===== =====
Income before income taxes
Pretax income from continuing operations
as reported $ 564 $ 447 $ 366 $ 340 $ 291
Share of pretax income (loss) of 50% owned
subsidiaries not included in above 4 6 4 3 1
------ ------ ------ ----- -----
Net income as adjusted $ 568 $ 453 $ 370 $ 343 $ 292
====== ====== ====== ===== =====
Fixed charges:
Interest on other borrowings $ 548 $ 452 $ 482 $ 254 $ 170
Interest on long-term debt including
amortization of debt issue costs 55 15 9 9 10
Portion of rents representative of the
interest factor in long term lease 10 10 4 4 4
------ ------ ------ ----- -----
Fixed charges $ 613 $ 477 $ 495 $ 267 $ 184
====== ====== ====== ===== =====
Ratio of earnings to fixed charges 1.93x 1.95x 1.75x 2.29x 2.59x
(B) Including interest on deposits:
Adjusted earnings from (A) above $1,181 $ 930 $ 865 $ 610 $ 476
Add interest on deposits 512 425 416 281 214
------ ------ ------ ----- -----
Earnings as adjusted $1,693 $1,355 $1,281 $ 891 $ 690
====== ====== ====== ===== =====
Fixed Charges:
Fixed charges from (A) above $ 613 $ 477 $ 495 $ 267 $ 184
Interest on deposits 512 425 416 281 214
------ ------ ------ ----- -----
Adjusted fixed charges $1,125 $ 902 $ 911 $ 548 $ 398
====== ====== ====== ===== =====
Adjusted earnings to adjusted fixed charges 1.50x 1.50x 1.41x 1.63x 1.74x
</TABLE>
<PAGE>
<TABLE>
Exhibit 13.1
State Street Corporation Selected Financial Data
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Compound
Growth
(Dollars in millions, except per share data; Rate
taxable equivalent) 1997 1996 1995 1994 1993 1992 92-97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Fee revenue ................................ $ 1,673 $ 1,302 $ 1,119 $ 1,017 $ 866 $ 743 18%
Interest revenue ........................... 1,799 1,480 1,371 961 751 771 18
Interest expense ........................... 1,114 892 907 544 394 450 20
-------- -------- -------- -------- -------- --------
Net interest revenue .................... 685 588 464 417 357 321 16
Provision for loan losses .................. 16 8 8 11 11 12
Total revenue ........................... 2,342 1,882 1,575 1,423 1,212 1,052 17
Operating expenses ......................... 1,734 1,398 1,174 1,058 899 766 18
-------- -------- -------- -------- -------- --------
Income before income taxes .............. 608 484 401 365 313 286 16
Income taxes ............................... 184 154 119 120 102 101
Taxable equivalent adjustment .............. 44 37 35 25 22 15
-------- -------- -------- -------- -------- --------
Net Income .............................. $ 380 $ 293 $ 247 $ 220 $ 189 $ 170 17
======== ======== ======== ======== ======== ========
PER SHARE
Earnings:
Basic ................................... $ 2.37 $ 1.81 $ 1.50 $ 1.34 $ 1.16 $ 1.05 18
Diluted ................................. 2.32 1.78 1.47 1.32 1.14 1.02 18
Cash dividends declared .................... .44 .38 .34 .30 .26 .22 15
Book value at year end ..................... 12.40 10.93 9.63 8.11 7.34 6.42 14
Closing price at year end .................. 58.19 32.31 22.50 14.31 18.75 21.88 6
Diluted shares outstanding (in thousands) .. 163,789 164,375 167,687 166,908 166,297 166,812
ANNUAL AVERAGES
Interest-earning assets .................... $ 31,425 $ 26,359 $ 23,120 $ 19,927 $ 16,885 $ 14,504 17
Total assets ............................... 35,426 29,483 26,182 22,795 18,927 16,255 17
Noninterest-bearing deposits ............... 5,288 4,638 4,113 4,701 4,059 3,305 10
Non-U.S. deposits .......................... 12,645 10,372 8,470 7,392 4,954 3,955 26
Long-term debt ............................. 717 213 127 128 122 146 37
Stockholders' equity ....................... 1,847 1,618 1,483 1,284 1,125 970 14
RATIOS
Return on equity ........................... 20.6% 18.1% 16.7% 17.2% 16.8% 17.5%
Internal capital generation rate ........... 16.9 14.3 12.9 13.3 13.1 13.8
Employees at year end ...................... 14,199 12,792 11,324 11,528 10,445 9,698 8
- ------------------------------------------------------------------------------------------------------------------------------------
o In 1995, State Street acquired Investors Fiduciary Trust Company in a transaction accounted for as a pooling of interests. All
prior period information has been restated to reflect this acquisition.
o Per share amounts for 1992 to 1996 have been restated to reflect a two-for-one stock split distributed in 1997 and to conform to
Statement of Financial Accounting Standard No. 128, "Earnings Per Share."
</TABLE>
<PAGE>
Exhibit 13.2
Long-Term Global Trends are Creating Demand for our Services
Financial markets worldwide are large and growing. There is approximately $20
trillion worth of stock trading around the world, and over $21 trillion of
bonds, according to Salomon Brothers' most recent estimates. Analysis of the
major markets State Street serves indicates they will continue to grow strongly
over the next five years. While there is considerable overlap between
industries, the estimated size and future growth rates of these markets suggest
an outstanding opportunity for those who serve them.
The long-term, global trends discussed here convince us that these markets will
grow strongly for years. And State Street is better able than anyone to meet
these institutional investors' needs for technologically advanced, reliable
products and services.
State Street's Global Markets
1996 Estimated Estimated Annual
Global Assets Growth Rate
US$ Trillions 1996-2001
Mutual Funds $ 6.4 15%
Pension Funds 8.2 10%
Asset Management Industry 14.6 10%
Insurance Industry 8.9 9%
Sources: InterSec Research Corporation; Investment Company Institute;
State Street internal estimates
<PAGE>
[graphic omitted]
State Street is focused on serving institutional investors worldwide. Our
customers include mutual fund and insurance companies, corporate and government
pension funds, and investment managers, who serve large and growing markets.
Fundamental demographic, social, political, and economic changes -- long-term,
global trends -- ensure their markets will continue to grow well into the
future. And State Street, committed to serving institutional investors' needs,
plans to grow with its customers.
Aging Populations Worldwide
In 1950, life expectancy at birth, worldwide, was 46 years. Many people couldn't
expect to live long enough to retire. In less than 50 years, life expectancy
worldwide has risen 44%, to 66 years today; and 75 years in more developed
regions. Longer life spans are leading to longer retirements -- and longer
retirements require bigger pensions, more retiree services, and more personal
savings. Institutional investors, like mutual fund companies and corporate and
government pension plans, serve these needs, and State Street serves those
investors.
Increasing longevity is also causing a redistribution of the world's population.
Between 1997 and 2025, the over-60 population will increase by more than 100%.
The under-60 population will increase by less than 30%.
<PAGE>
World Population by Age
Year
------------------------------------
Age 1997 2005 2025
--- ---- ---- ----
(Millions of People)
(000 omitted)
60 Plus 567 665 1,178
40-59 1,091 1,345 1,854
20-39 1,842 2,018 2,335
0-19 2,346 2,433 2,537
Source: U.S. Census Bureau International Programs Center
Pressures on Pension Systems
More older people collecting retirement benefits from traditional, pay-as-you-go
pension systems, and proportionately fewer younger people paying into those
systems, presents tremendous challenges for public pension funds. As the ratio
of workers to retirees declines, many national governments are moving away from
pay-as-you-go plans, and funded pension plans are gaining popularity. In 1997
alone, Australia, Hungary, Italy, Mexico and Spain introduced major reforms to
their traditional systems to encourage personal savings and private pension
plans. In France, Germany, Hong Kong, Poland, the United States, and other
countries, governments are considering major changes.
Growing pools of assets funding these pension systems means more demand for
institutional investors' services -- which means more demand for the services
State Street offers.
Workers Per Retiree
Year
------------------------------------
Country 1950 1990 2030
------- ---- ---- ----
China -- 11.49 4.30
Germany 7.18 4.61 2.00
Japan 11.41 5.85 2.20
United Kingdom 6.24 4.17 2.60
United States 7.97 5.35 2.00
Brazil 22.75 13.90 5.50
Sources: OECD; World Bank
Increased Cross-Border Investing
Non-home country investments by pension funds worldwide
Year US$ billions
---- ------------
1990 345
1995 892
2001 2,309
Source: InterSec Research Corporation
Aging populations and the resulting pressures on pension systems have created
growing demand to improve returns and decrease risk for savings and investments.
Greater diversification can help achieve both these goals. The demand for
diversified investments, coupled with technological advances, has led to
explosive growth in cross-border investing. Where once many countries required
that pension and other assets be invested in the home country, and many
investors preferred to keep their funds at home, investing across national
borders is common today. Between 1990 and 2001, InterSec Research Corporation
expects non-home country investment by pension funds worldwide to more than
quintuple, rising from $345 billion to more than $2 trillion.
At State Street, we're seeing the results of this change as our customers look
to us for more services, including foreign exchange and currency management
services, global investment management strategies, and information services.
Complex, Global Investment Strategies
The growth in cross-border investing is part of a larger trend toward
increasingly complex, global investment strategies. Investors around the world
can choose from an increasingly wide range of securities and strategies for
their investments that includes blue chip and penny stocks; private placements
and IPOs; savings bonds and junk bonds; CDs and money market funds; global bond
funds, specialty stock funds, emerging markets index funds, active,
single-country balanced funds; puts and calls; LEAPS, ABS, REITs, SPDRs, OEICs,
and of course much more.
Our customers look to State Street for the value-added products and services --
from information to settlement -- that enable them to execute their strategies.
Mutual Funds o Interest Rate Swaps o U.S. Equities o Tactical Asset Allocation o
Japanese Warrants o Emerging Markets Equities o S&P 500 Index Funds o High Yield
Bonds o Gold Futures o Mortgage-Backed Securities o Commercial Paper o Thai Bhat
o Municipal Bonds o Growth o Value o Income o Emerging Markets Index Funds o
Asset-Backed Securities o Money Market Funds o Malaysian Utility Debt o Private
Placements o Active o Enhanced o Passive o Small Cap Stocks o Global Bonds o
Eastern European Stock Funds o Convertibles o Stockpicking o Quantitative o
Illinois Hogs o Socially-Conscious Stock Funds o Technology Stocks o Brady Bonds
o Blue Chip Stocks o Reverse Repos o Annuities o Canadian Dollar Options o
Collateralized Mortgage Obligations o REITs o GICs o Derivatives o SPDRs o
Sovereigns
<PAGE>
Financial Review State Street Corporation
This section provides management's discussion and analysis of State Street's
consolidated results of operation for the three years ended December 31, 1997,
and its financial condition at year-end 1997. It should be read in conjunction
with the Consolidated Financial Statements and Supplemental Financial Data.
State Street is the world's leading specialist in serving institutional
investors. Among the services State Street provides customers worldwide are:
o Custody, accounting, daily o Information and trading
pricing and administration
o Credit services
o Foreign exchange, cash
management and securities
lending
o Investment management
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
SUMMARY
- --------------------------------------------------------------------------------
In 1997, State Street exceeded both its financial goals and historical trends by
substantial margins. Earnings per diluted share of $2.32 were up 30% from 1996.
Revenue increased 24% from the previous year. Return on stockholders' equity was
20.6%.
State Street's primary financial goal is to achieve sustainable real
(inflation-adjusted) growth in earnings per share. Over the last 15 years,
earnings per diluted share increased 17% per year, compounded annually. State
Street's two supporting financial goals are for revenue growth and return on
stockholders' equity. The revenue goal, to repeat the strong revenue growth of
the 1980s in the 1990s, requires 12.5% real (inflation-adjusted) growth or
approximately 15% nominal growth annually. Nominal revenue has increased 17% per
year, compounded annually, in the decade to date. Return on stockholders' equity
was 20.6% for 1997, above State Street's goal of 18%.
This was State Street's twentieth consecutive year of double digit earnings per
share growth. The Corporation achieved this record through periods of inflation,
disinflation, recession, gyrations in securities markets, and rapid market
innovation. State Street's consistent financial performance demonstrates
successful execution of its strategic plan to build value for its stockholders
while continuing to invest in technology, new products and services, and
expansion into new markets.
Growth in revenue contributed importantly to this consistent financial
performance. Revenue growth was driven primarily by customers' expanding needs,
arising in part from the continuation of the long-term trends (discussed in the
fold-out on page 5) that create demand for services provided by State Street. In
1997, State Street was positioned to benefit not only from these long-term
trends, especially the continued strong level of cross-border investing, but
also from several other external factors. Securities values were higher, on
average, than in 1996. Currency markets were active and volatile. U.S. mutual
funds experienced strong cash inflows.
State Street signed a record level of new business in 1997, some of which was
installed during the year, and some of which will be installed in 1998.
With record new business signed in 1997 and the continuation of the long-term
trends driving demand for services provided by State Street, management is
optimistic about State Street's prospects. Since external factors may not be as
favorable in the future, management expects State Street's long-term earnings
per share growth rates to be more in keeping with its long-term, historical
performance. Management remains confident that execution of its strategic
business plan will continue to create value for stockholders.
Diluted Earnings Per Share
(Dollars)
1993 ................ 1.14
1994 ................ 1.32
1995 ................ 1.47
1996 ................ 1.78
1997 ................ 2.32
<PAGE>
- --------------------------------------------------------------------------------
REVENUE
State Street specializes in providing services and investment management for
institutional investors worldwide and focuses on customer relationships. This
results in high customer retention and recurring revenue.
State Street offers a wide range of products and services to customers with
varied and complex needs. Customers continue to increase the number of State
Street products they use. The Corporation's 1,000 largest customers used an
average of 5.5 products in 1997, up from 5.3 in 1996 and 4.9 in 1995.
State Street classifies revenue received for services as either fee revenue or
net interest revenue according to the service provided. Management focuses on
increasing total revenue. In 1997, total revenue grew 24%, to $2.3 billion, with
a $371 million increase in fee revenue and an $89 million increase in net
interest revenue.
Total Revenue
(Dollars in billions)
1993 ................. 1.2
1994 ................. 1.4
1995 ................. 1.6
1996 ................. 1.9
1997 ................. 2.3
FEE REVENUE
In 1997, fee revenue accounted for 71% of total revenue and was $1.7 billion, up
$371 million, or 28%, over 1996 due to strong new business from both existing
customers and new customers; customer growth; and a favorable operating
environment. Fee revenue growth came from fiduciary compensation, up $234
million; foreign exchange trading revenue, up $119 million; and servicing and
processing fees, up $34 million.
- -----------------------------------------------------------------------
FEE REVENUE Change
(Dollars in millions) 1997 1996 1995 96-97
- -----------------------------------------------------------------------
Fiduciary compensation ..... $1,252 $1,018 $ 824 23%
Foreign exchange trading ... 245 126 141 95
Servicing and processing ... 159 125 113 28
Other ...................... 17 33 41 (50)
------ ------ ------ --
Total fee revenue ........ $1,673 $1,302 $1,119 28
====== ====== ====== ==
- -----------------------------------------------------------------------
FIDUCIARY COMPENSATION
Fiduciary compensation, up 23%, is the largest component of fee revenue and is
derived from accounting, custody, information, investment management, securities
lending and trusteeship services.
Fees recorded in fiduciary compensation are a function of the mix and volume of
assets under custody and management, securities positions held, portfolio
transactions, and securities on loan. If equity values worldwide were to
increase or decrease 10%, State Street estimates that this, by itself, would
cause approximately a 2% change in total revenue. If bond values were to change
by 10%, State Street would anticipate less than a 1% change in total revenue.
Securities lending revenue is sensitive to the short-term interest-rate yield
curve. Revenue benefits from cross-border investing. In 1997, non-U.S. assets of
U.S. customers increased 31%, despite unchanged equity values as measured by
Morgan Stanley's EAFE index.
Fees increasingly reflect the use of services other than basic custody and
accounting, such as mutual fund administration, services for offshore mutual
funds, performance and analytics, and compliance monitoring.
The following sections discuss services that contribute to fiduciary
compensation and the factors driving fiduciary compensation growth. These
services also generate other forms of revenue, such as foreign exchange trading
revenue and net interest revenue from deposits, that are not recorded as
fiduciary compensation. The amount of these other forms of revenue may affect
the amount of fiduciary compensation received. The first three services are
included in the line of business that reports on services for institutional
investors; investment management is reported separately. Many institutional
investors use multiple services, including investment management.
MUTUAL FUND SERVICES. State Street is the world's largest mutual fund custodian,
accounting agent and administrator. In the United States, State Street provides
custody services to 41% of registered mutual funds. State Street is distinct
from other mutual fund service providers because customers make extensive use of
a number of related services in addition to custody, including accounting and
daily pricing. The Corporation provides fund accounting services for more than
five times the assets serviced by the next largest accounting service provider.
State Street is responsible for 25% of the U.S. mutual fund prices that appear
daily in The Wall Street Journal. Services such as fund administration,
accounting for multiple classes of shares, master/feeder accounting, and
services for offshore funds and for local funds in locations outside the United
States add importantly to fiduciary compensation. Shareholder services are
provided through an affiliate, Boston Financial Data Services, Inc.
A long-term revenue driver is the number of mutual fund complexes, or mutual
fund families, the Corporation services. Once a mutual fund complex becomes a
customer, that complex is likely to select State Street to provide more
services, service more funds, or both. In addition, State Street benefits
substantially from the growth of its customers. At year-end 1997, 254 mutual
fund complexes used State Street's services, up from 248 a year ago. This
continued a long record of growth despite ongoing industry consolidation.
Mutual Fund Complexes
1993 ................. 187
1994 ................. 231
1995 ................. 242
1996 ................. 248
1997 ................. 254
In 1997, nearly half the revenue growth from servicing mutual funds came from
new business, both from existing customers and new customers. Increased revenue
from accounting and custody reflected growth in assets, particularly non-U.S.
assets; additional mutual funds; and a higher volume of trades. This growth
reflects in part the strong net cash flows into U.S. mutual funds during the
year. Revenue from servicing offshore funds and from mutual fund administration
continued to increase rapidly.
In 1997, total mutual fund assets under custody increased 33%. The total number
of funds serviced increased by 347, to 3,321. There were 648 new funds serviced,
555 from existing customers and 93 from new customers, partially offset by 301
funds no longer serviced due primarily to mergers and consolidations of funds.
The number of offshore funds serviced was up 27% from a year ago and offshore
assets increased 52%. The number of funds for which State Street provides mutual
fund administration was up 42%, and assets under administration more than
doubled.
SERVICES FOR U.S. PENSION, INSURANCE AND OTHER INVESTMENT POOLS. State Street
provides custody, portfolio accounting, securities lending, information, and
other, related services for retirement plans and other financial asset
portfolios of corporations, public funds, investment managers, non-profit
organizations, unions and others. The Corporation is developing the products and
services, such as performance and analytics, global reporting, and compliance
monitoring, that these institutional customers require for their increasingly
complex needs.
Market Share of U.S. Pension Assets
(Percent of market)
1993 .................. 15
1994 .................. 17
1995 .................. 21
1996 .................. 22
1997 .................. 24
Source: Money Market Directory data
State Street is the largest servicer of U.S. tax-exempt assets for corporations
and public funds, a rank it has held since 1986. Over the past five years, its
market share has grown from 15% to 24%. Substantial revenue growth in 1997 came
from growth in current customer relationships as well as from new customers.
CUSTOMERS OUTSIDE THE UNITED STATES. As part of its global expansion plan, State
Street has built systems to deliver tailored services to meet customers' needs
in their local markets. Assets under custody for customers outside the United
States have increased at a compound annual growth rate of 35% since 1992. In
1997, assets for those customers totaled $266 billion, an increase of 32% from
1996, with strong growth in Europe and Canada. Revenue grew rapidly in 1997 due
to new customers and additional business from existing customers.
Assets Under Custody for
Non-U.S. Customers
(Dollars in billions)
1993 ................. 90
1994 ................. 102
1995 ................. 152
1996 ................. 202
1997 ................. 266
INVESTMENT MANAGEMENT. State Street provides an extensive range of investment
management services, including investment management for corporations, public
funds, and other institutional investors; recordkeeping and investment services
for defined contribution plans; and investment management and other services for
high-net-worth individuals. These services are offered through State Street
Global Advisors ("SSgA"). In 1997, strong revenue growth occurred across all
services. In the United States, SSgA is the second largest manager of tax-exempt
assets, the fourth largest manager of total assets, and one of the five largest
managers of defined contribution plan assets.
SSgA offers a broad array of investment strategies, including passive, enhanced,
and active management using quantitative and fundamental methods for both global
equities and global fixed income. Fees are based on the investment strategy, the
amount of the investment, and the customer's total State Street relationship.
Assets Under Management
(Dollars in billions)
1993 ................. 142
1994 ................. 161
1995 ................. 227
1996 ................. 292
1997 ................. 390
In 1997, revenue from managing assets for institutional investors was driven
primarily by new relationships, additional contributions from existing customers
and higher values of U.S. equities. The two strategies contributing most to the
increase in revenue were international and domestic passive equities.
Revenue from providing participant services to defined contribution plans grew
significantly as a result of new business and growth in existing business. The
number of participants served increased to 2.4 million from 2.0 million in 1996.
ASSETS UNDER CUSTODY AND MANAGEMENT. The amounts of assets under custody and
assets under management indicate the relative size of various markets served
and, as adjusted for market-value changes, serve as proxies for business growth.
Changes in asset levels do not necessarily cause corresponding revenue changes
due to the structure of asset-based fee schedules and the many services that are
priced on factors other than asset size.
Market value changes had a positive impact on the value of assets under custody
and management in 1997. The U.S. equity market, as measured by the S&P 500
index, increased 31%. U.S. bond markets, as measured by the Lehman Brothers
Aggregate Bond index, increased 2%. International equity markets, as measured in
dollars by the Morgan Stanley EAFE index, were virtually unchanged at year end.
In 1997, total assets under custody increased $961 billion, or 33%, to $3.9
trillion. Using broad assumptions, management estimates that approximately half
of the increase was due to the impact of higher securities market values, and
half was due to additional contributions to mutual funds, pension plans and
other portfolios, and to new business.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
ASSETS UNDER CUSTODY AND MANAGEMENT Compound
DECEMBER 31, Growth
Change Rate
(Assets in billions) 1997 1996 1995 1994 1993 1992 96-97 92-97
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS UNDER CUSTODY
Customers in the U.S.:
Mutual Funds ............ $1,705 $1,281 $1,001 $ 788 $ 796 $ 656 33% 21%
Pension, insurance and
other investment pools . 1,932 1,459 1,125 838 798 674 32 23
Customers outside the U.S. 266 202 152 102 90 59 32 35
------ ------ ------ ------ ------ ------
Total ................. $3,903 $2,942 $2,278 $1,728 $1,684 $1,389 33 23
====== ====== ====== ====== ====== ======
ASSETS UNDER MANAGEMENT
Equities:
Passive .................. $ 168 $ 119 $ 83 $ 55 $ 48 $ 34 41 38
Active ................... 26 20 18 14 11 10 30 21
Employer securities ....... 51 39 34 18 17 17 31 25
Fixed income .............. 28 24 19 12 11 10 17 23
Money market .............. 117 90 73 62 55 40 30 24
------ ------ ------ ------ ------ ------
Total ................. $ 390 $ 292 $ 227 $ 161 $ 142 $ 111 34 29
====== ====== ====== ====== ====== ======
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
At year-end, approximately 55% of assets under custody at State Street were
equities, 25% were fixed income instruments and 20% were short-term instruments.
Non-U.S. securities comprised 10% of total assets under custody, with emerging
markets less than 1%.
Assets managed by State Street increased to $390 billion, up $98 billion, or
34%, from year-end 1996. State Street estimates that approximately 40% of the
$98 billion year-over-year increase was due to higher securities market values
and 60% was due to additional contributions and new business. At year end,
non-U.S. securities comprised 20% of total securities, with emerging markets
securities comprising less than 3%.
FOREIGN EXCHANGE TRADING
Institutional investors need comprehensive foreign exchange services. State
Street understands their needs and provides these services. New currency
research, risk management, electronic execution services, and additional
currencies traded helped earn State Street a position among the ten best foreign
exchange service providers overall in a 1997 worldwide survey of institutional
investors by Global Investor magazine.
Investment Managers Using
Foreign Exchange Services
1993 ................. 369
1994 ................. 405
1995 ................. 499
1996 ................. 575
1997 ................. 625
In 1997, the number of institutional investors trading with State Street
increased to 625, up from 575 a year ago, and existing relationships expanded,
positioning State Street to benefit substantially from active currency markets.
In 1997, foreign exchange trading revenue was $245 million, up 95% from the
prior year. Major currencies were about 50% more volatile than in 1996,
contributing to revenue growth. The volume of customer trades, measured in
dollars, was up 54% from a year ago.
SERVICING AND PROCESSING
Servicing and processing revenue includes fees from software licensing and
maintenance, loans, brokerage services, trade banking, investment banking, and
cash management. Servicing and processing revenue of $159 million was up 28%
from 1996. This reflected, in part, the acquisition of Princeton Financial
Systems, Inc. in November 1996 and its subsequent growth. Revenue increased from
all other sources, particularly brokerage fees. Revenue growth was partially
offset by the sale of a non-strategic business.
OTHER FEE REVENUE
Other fee revenue includes gains and losses on sales of investment securities,
other assets, leveraged leasing residuals, and currency translation; trading
account profits and losses; profit or loss from joint ventures; and amortization
of investments in tax-advantaged financings. In 1997, other fee revenue declined
$16 million, with about half the decline due to a write-down of real estate
acquired for expansion occurring elsewhere.
NET INTEREST REVENUE
In serving institutional investors worldwide, State Street provides deposit
services and repurchase agreements for the short-term cash positions associated
with customers' investment activities. The revenue from these services and from
lending activities are recorded as net interest revenue.
Net interest revenue is the amount of interest received on interest-earning
assets reduced by the interest paid on interest-bearing liabilities. In this
discussion, 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 1997 was $685 million, up $97
million, or 17%, over 1996, driven by balance sheet growth.
- -------------------------------------------------------------------------
NET INTEREST REVENUE
(Dollars in millions; Change
taxable equivalent) 1997 1996 1995 96-97
- -------------------------------------------------------------------------
Interest revenue ............ $1,755 $1,443 $1,336
Taxable equivalent adjustment 44 37 35
------ ------ ------
1,799 1,480 1,371
Interest expense ........... 1,114 892 907
------ ------ ------
Net interest revenue ..... $ 685 $ 588 $ 464 17%
====== ====== ======
- -------------------------------------------------------------------------
The Corporation manages its balance sheet to support its businesses worldwide.
In 1997, State Street continued to expand globally, installing new customers and
benefiting from existing customers' growth, activity, and use of additional
services. State Street's balance sheet expanded, due to additional funds in the
form of short-term cash placed in non-U.S. deposits, repurchase agreements and
noninterest-bearing deposits. Customer funds from these sources rose $4.7
billion and funded, along with increased long- term debt, the growth in average
interest-earning assets of $5.1 billion, or 19%, to $31.4 billion. Loans
increased $838 million, or 19%, due to growth in securities settlement advances,
commercial loans, and leveraged leases.
Key Customer Liabilities
(Average dollars in bilions)
1993 ................. 13.2
1994 ................. 17.1
1995 ................. 19.7
1996 ................. 22.8
1997 ................. 27.5
Net interest margin, which is defined as taxable-equivalent net interest revenue
as a percent of average interest-earning assets, declined from 2.23% in 1996 to
2.18% in 1997 due to narrower interest rate spreads.
OPERATING EXPENSES
- --------------------------------------------------------------------------------
In 1997, operating expenses were $1.7 billion, up 24%, supporting current
business growth and investments for future growth. Installation of a substantial
amount of new business and existing customers' internal growth resulted in
significantly greater business volume. Total average assets under custody
increased 31% and the volume of securities transactions was up 31%. Average
assets under management were up 32%.
Salaries and employee benefits, the largest component of expense, was $973
million, up 25% from 1996, due to higher salary expense, incentive compensation
and employee benefits costs. Because of State Street's strong financial
performance in 1997, an increase in the number of participants in State Street's
incentive plans, record new business, and a higher stock price, incentive
compensation comprised a larger proportion of expenses than it did in 1996.
- --------------------------------------------------------------------------------
OPERATING EXPENSES
Change
(Dollars in millions) 1997 1996 1995 96-97
- --------------------------------------------------------------------------------
Salaries and employee benefits .... $ 973 $ 775 $ 651 25%
Transaction processing services ... 184 164 125 12
Equipment ......................... 164 138 124 19
Occupancy ......................... 119 100 84 18
Other ............................. 294 221 190 34
------ ------ ------ --
Total operating expenses ........ $1,734 $1,398 $1,174 24
====== ====== ====== ==
- --------------------------------------------------------------------------------
Transaction processing services expense is comprised of volume-related expenses
including external contract services, subcustodian fees, and fees related to
securities settlement. Despite substantial volume increases, this expense
category was only up $20 million, or 12%.
Equipment expense was $164 million, up 19%, due primarily to the purchase of
additional desktop computers, servers, communications equipment and other
peripheral devices, as well as software rental and maintenance, supporting
volume growth and additional or enhanced products and services.
Occupancy expense increased 18%, to $119 million, due to additional office space
required to support growth worldwide.
Other expenses include professional services, advertising, sales promotion,
office supplies, and telecommunications. In 1997, other expenses increased $73
million to $294 million, due to increased use of professional services,
including outsourced software development; additional fees for legal, accounting
and other services; and increased expense related to the introduction of new
products and branding initiatives.
INCOME TAXES
- --------------------------------------------------------------------------------
Income tax expense was $184 million in 1997 and $154 million in 1996. In 1997,
the effective tax rate was 32.6%, down from 34.5% in 1996. The lower effective
tax rate for 1997 was due to higher tax credits, initiatives to minimize tax
expense worldwide, and the phase-in of a lower state tax rate.
ACQUISITIONS, ALLIANCES AND DIVESTITURES
- --------------------------------------------------------------------------------
State Street's emphasis is on internal growth. However, the Corporation makes
acquisitions for strategic purposes, provided there is no long-term earnings per
share dilution. Acquisitions and alliances enhance established capabilities by
adding new products or services, expand geographic reach, or increase, very
selectively, market share.
During 1997, State Street took several initiatives to expand its investment
management services. In February, State Street and a minority partner formed
European Direct Capital Management, specializing in direct equity investing in
Eastern and Central Europe. In June, State Street formed a joint venture with
Mansion House Group Ltd. to provide investment management and mutual fund
services in the People's Republic of China. In October, State Street purchased
the research division of Advanced Investment Technology Inc. ("AIT"), which
performs quantitative analysis using nonlinear tools described as genetic
algorithms or neural networks, and purchased a majority interest in AIT's asset
management business, with $150 million in assets under management.
In June, State Street acquired a New England-based corporate trust business,
becoming the paying agent for an additional 6,300 corporate trust issues
representing about $96 billion in outstanding bonds. At year-end, the
Corporation had a total of $488 billion in bonds under trusteeship. State Street
estimates that it is among the five largest providers of corporate trust
services in the United States.
Additionally in June, State Street sold its subsidiary Wendover Funding, a
non-strategic business focused on loan servicing for home lenders, governmental
agencies, and other investors.
In December, State Street announced plans to acquire the unit trust trustee
business of Bank of Scotland, with $22 billion in assets under administration
for 183 collective investment funds. The Corporation expects to complete the
acquisition, subject to regulatory approval, in early 1998. Bank of Scotland's
capabilities in the unit trust trustee business complement State Street's
established expertise in accounting and fund administration, providing a
foundation on which State Street can build a full-service trustee, accounting,
and fund administration operation for the U.K. collective investment fund
market.
YEAR 2000
- --------------------------------------------------------------------------------
Many computer systems and software products worldwide and throughout all
industries will not function properly as the year 2000 approaches unless
changed, due to a once-common programming standard that represents years using
two-digits. This is the "Year 2000" problem that has received considerable media
coverage. State Street implemented a comprehensive program in 1996 that
addresses Year 2000 compliance and is supported by a corporate-wide structure of
compliance teams, a central program management office, and a governance and
oversight structure.
As part of this program, State Street has identified those systems and
applications that require modification, redevelopment or replacement. The
program has established appropriate testing procedures and a schedule for
completion of this work. State Street's Year 2000 program also establishes
standards and deadlines for the Corporation's vendors and other third-party
providers, and procedures for determining reasonable alternatives to those
third-party providers, including subcustodians, who do not meet compliance
standards.
State Street's goal is to be Year 2000 compliant by December 31, 1998 with
respect to its internal systems. Testing and integration of third-party
providers' systems will continue into 1999. As of year-end 1997, the program is
well under way.
State Street is fully committed to achieving its compliance goal. This program
requires hiring staff and consultants, purchasing equipment, and incurring other
expenses. Management estimates that the total cost of the program for the
five-year period 1996-2000 will be less than 2% of total operating expenses, or
in aggregate, less than $200 million. The Corporation expects to absorb these
expenses within normal spending levels.
COMPARISON OF 1996 VERSUS 1995
- --------------------------------------------------------------------------------
In 1996, diluted earnings per share increased 21% to $1.78. Total revenue
increased 19% and return on stockholders' equity was 18.1%, up from 16.7% in
1995.
This strong performance exceeded all financial goals. Revenue grew in all
businesses and was driven by new business worldwide, including new relationships
and existing customers' use of additional products and services. A generally
favorable business environment, including the continued expansion of
cross-border investing, contributed to revenue growth as well.
LINES OF BUSINESS
- --------------------------------------------------------------------------------
State Street reports three lines of business: Services for Institutional
Investors, Investment Management and Commercial Lending. The operating results
of these lines of business are not necessarily comparable with business lines
reported at any other company.
Revenue and expenses are directly charged or allocated to the lines of business
through algorithm-based management information systems. Because State Street
prices on total customer relationships and other factors, revenues may not
necessarily reflect market pricing on products within the business lines in the
same way as they would for separate legal entities. Assets and liabilities are
allocated according to rules that support management's strategic and tactical
goals. Capital is allocated based on risk-weighted assets employed and
management's judgment. The capital allocations may not be representative of the
capital that might be required if these lines of business were independent
business entities.
In the following table, certain previously reported line of business information
has been restated to conform to the current method of presentation.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
LINES OF BUSINESS Services for Investment Commercial
Institutional Investors Management Lending
(Dollars in millions;
taxable equivalent) 1997 1996 1995 1997 1996 1995 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fee revenue ............ $ 1,211 $ 940 $ 846 $407 $318 $235 $ 55 $ 44 $ 38
Net interest revenue ... 469 411 302 33 23 23 167 146 131
------- ------- ------- ---- ---- ---- ------ ------ ------
Total revenue ........ 1,680 1,351 1,148 440 341 258 222 190 169
Operating expenses ..... 1,293 1,043 908 345 268 191 96 87 75
------- ------- ------- ---- ---- ---- ------ ------ ------
Operating profit ..... $ 387 $ 308 $ 240 $ 95 $ 73 $ 67 $ 126 $ 103 $ 94
======= ======= ======= ==== ==== ==== ====== ====== ======
Pretax margin .......... 23% 23% 21% 22% 21% 26% 57% 54% 56%
Percentage contribution 64% 64% 60% 15% 15% 17% 21% 21% 23%
Average assets ......... $31,031 $25,722 $23,010 $696 $556 $428 $3,699 $3,205 $2,744
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Contribution to Total Revenue
Services for Institutional Investors ... 72%
Investment Management .................. 19%
Commercial Lending ..................... 9%
SERVICES FOR INSTITUTIONAL INVESTORS
This line of business is comprised of services for institutional investors
worldwide. Accounting, custody, daily pricing and information services are
provided for large portfolios of investment assets. Foreign exchange, cash
management, securities lending and other services support institutional
investors in developing and executing their strategies, enhancing their returns,
and evaluating and managing risk. Revenue from this line of business comprised
72% of State Street's total revenue for 1997.
Revenue increased to $1.7 billion, up 24% from $1.4 billion in 1996. The $329
million increase in revenue was driven by strong new business from both existing
and new customers and from customer growth, facilitated by a favorable operating
environment. Fee revenue was up $271 million, or 29%, due to growth in fiduciary
compensation and foreign exchange trading revenue. Fiduciary compensation, up
21%, reflected substantial revenue increases from services for mutual funds, for
U.S. pension and other investment pools, and for customers outside the United
States. Foreign exchange trading revenue nearly doubled from a year ago due to
growth in the volume of transactions and volatile currency markets.
Net interest revenue, up 14%, reflected the results of investing customer
deposits and other short-term customer funds in interest-earning assets. In
1997, customer funds, particularly non-U.S. deposits, repurchase agreements, and
noninterest-bearing deposits, grew substantially.
Operating expenses were $1.3 billion, 24% higher than in 1996, supporting
business growth and investments for future growth.
In 1997, operating profit was $387 million, an increase of $79 million, or 26%,
from 1996, reflecting strong revenue growth.
INVESTMENT MANAGEMENT
State Street manages financial assets worldwide for both institutions and
individuals and provides related services, including participant services for
defined contribution plans. Investment management features a broad array of
services, including passive and active equity, money market, and fixed income
strategies. Revenue from this line of business comprised 19% of State Street's
total revenue for 1997.
Revenue grew 29%, to $440 million, due to strong growth across the business --
investment management for institutions and high-net-worth individuals, defined
contribution plan services, and brokerage services.
Operating expenses increased $77 million, or 29%, due to additional staff,
office space and systems in support of business growth.
Operating profit was $95 million, an increase of $22 million, or 30%, from $73
million in 1996.
COMMERCIAL LENDING
Reported in this line of business are loans and other banking services for
regional middle-market companies, for companies in selected industries
nationwide, and for broker/dealers. Other credit services include leasing and
international trade finance. Revenue from this line of business comprised 9% of
State Street's total revenue for 1997.
Revenue grew to $222 million, up 17% from $190 million in 1996, due primarily to
a 22% increase in loans and leases, and increased fee revenue. Loans to
businesses in the northeastern United States and specialty industries
nationwide, leveraged leases, and international trade finance all grew.
Increased fees came from lending activity and gains on leasing residuals.
In 1997, non-performing assets declined and other measures of credit quality
remained strong. Commercial Lending provided for loan losses at $15 million, up
from $8 million a year ago, supporting growth in loans outstanding. The
provision for loan losses and the credit experience of State Street for the
three years ended December 31, 1997, is shown in Note D to the Consolidated
Financial Statements on page 30.
Operating expenses increased 10% and operating profit was $126 million, an
increase of $23 million, or 22%, from 1996.
FINANCIAL GOALS AND FACTORS THAT MAY AFFECT THEM
- --------------------------------------------------------------------------------
State Street's primary financial goal is sustainable real growth
in earnings per share. The Corporation has two supporting goals, one for total
revenue growth and one for return on common stockholders' equity ("ROE"). The
revenue goal is 12.5% real, or inflation adjusted, compound annual growth in
revenue for the decade of the 1990's. This translates to approximately 15%
nominal compound annual growth. The ROE goal is to achieve 18%.
State Street considers these to be financial goals, not projections
or forward-looking statements. However, the discussion in this Financial Review,
and in other portions of this Annual Report, does contain statements that are
considered "forward-looking statements" within the meaning of the Federal
securities laws. These statements may be identified by such forward-looking
terminology as "expect," "look," "believe," "anticipate," "may," "will," or
similar statements or variations of such terms. The Corporation's financial
goals and such forward-looking statements involve certain risks and
uncertainties, including the issues and factors listed below and factors further
described in conjunction with the forward-looking information, which could cause
actual results to differ materially. The following issues and factors should be
carefully considered. The Corporation assumes no obligation for updating any
such forward-looking information.
Based on its evaluation of these factors, management is currently optimistic
about the Corporation's long-term prospects.
CROSS-BORDER INVESTING. Cross-border investing by customers worldwide benefits
State Street's revenue. Future revenue may increase or decrease depending upon
the extent of cross-border investments made by customers or future customers.
SAVINGS RATE OF INDIVIDUALS. State Street benefits from the savings of
individuals that are invested in mutual funds or defined contribution plans.
Changes in savings rates or investment styles may affect revenue.
VALUE OF WORLDWIDE FINANCIAL MARKETS. As worldwide financial markets increase or
decrease in value, State Street's opportunities to invest and service financial
assets may change. Since a portion of the Corporation's fees are based on the
value of assets under custody and management, fluctuations in worldwide
securities market valuations will affect revenue, as discussed on page 11.
DYNAMICS OF MARKETS SERVED. Changes in markets served, including the growth rate
of U.S. mutual funds, the pace of debt issuance, outsourcing decisions, and
mergers, acquisitions and consolidations among customers and competitors can
affect revenue. In general, State Street benefits from an increase in the volume
of financial market transactions serviced.
State Street provides services worldwide. Global and regional economic factors
and changes or potential changes in laws and regulations affecting the
Corporation's business, including changes in monetary policy, could also affect
results of operations.
INTEREST RATES. Market interest rate levels, the shape of the yield curve and
the direction of interest rate changes affect both net interest revenue and
fiduciary compensation from securities lending. In a stable rate environment,
State Street benefits from high interest rates, because it has a larger amount
of interest-earning assets than interest-bearing liabilities, and from a steeper
curve. All else being equal, in the short term State Street benefits from
falling interest rates and is negatively affected by rising rates because
interest-bearing liabilities reprice sooner than interest-earning assets.
VOLATILITY OF CURRENCY MARKETS. The degree of volatility in foreign exchange
rates can affect the amount of foreign exchange trading revenue.
PACE OF PENSION REFORM. State Street expects to benefit from worldwide pension
reform that creates additional pools of assets that use custody and related
services and investment management services. The pace of pension reform may
affect the pace of revenue growth.
PRICING/COMPETITION. Future prices the Corporation is able to
obtain for its products may increase or decrease from current
levels depending upon demand for its products, its competitors' activities, and
the introduction of new products into the marketplace.
PACE OF NEW BUSINESS. The pace at which existing and new customers use
additional services and assign additional assets to State Street for management
or custody will affect future results.
BUSINESS MIX. Changes in business mix, including the mix of U.S. and non-U.S.
business, will affect future results.
RATE OF TECHNOLOGICAL CHANGE. Technological change creates opportunities for
product differentiation and reduced costs as well as the possibility of
increased expenses. State Street's financial performance depends in part on its
ability to develop and market new and innovative services and to adopt or
develop new technologies that differentiate State Street's products or provide
cost efficiencies.
YEAR 2000 MODIFICATIONS. The costs and projected completion date of State
Street's Year 2000 program are estimates. Factors that may cause material
differences include the availability and cost of systems and other personnel,
non-compliance of third-party providers, and similar uncertainties. If necessary
modifications and conversions are not completed in time, the Year 2000 issue
could affect State Street's performance.
ACQUISITIONS AND ALLIANCES. Acquisitions of complementary businesses and
technologies and strategic alliances are an active part of State Street's
overall business strategy, and the Corporation has completed several
acquisitions in recent years. However, there can be no assurance that services,
technologies, key personnel, and businesses of acquired companies will be
effectively assimilated into State Street's business or service offerings or
that alliances will be successful.
Financial Condition
- --------------------------------------------------------------------------------
BALANCE SHEET
State Street provides deposit and other balance sheet services to its customers,
who are primarily institutional investors. These customers, in executing their
worldwide investment activities, require short-term investment vehicles and
deposit accounts. These short-term deposits and other customer funds comprise
the majority of State Street's liabilities. State Street invests these funds,
primarily in low risk assets. Thus, State Street's business mix results in a
distinctive composition of its balance sheet, which affects the Corporation's
approach to managing interest rate sensitivity, liquidity and credit risk.
LIABILITIES
The growth in State Street's balance sheet is driven by growth in liabilities.
State Street uses its balance sheet capacity to support customers' transactions
and short-term investment strategies. Customers' needs, along with management's
objectives, determine the volume, mix and currencies of the liabilities.
Average Liabilities and Equity
Customer Funds With Interest ............ 72%
Customer Funds Without Interest ......... 15%
Debt and Equity ......................... 7%
Other Non-interest Bearing .............. 6%
Average interest-bearing liabilities increased $4.3 billion, or 20%, in 1997.
The most significant growth in liabilities occurred in non-U.S. time, call and
transaction deposits, used by both non- U.S. and U.S. customers; and in
securities sold under repurchase agreements, used primarily by mutual funds
customers. Non-U.S. deposits grew 22%, to $12.6 billion; 43% of this balance
consists of transaction account balances, which have lower interest rates than
other interest-bearing sources of funds. Securities sold under repurchase
agreements increased 23%, to an average of $9.6 billion for the year.
Noninterest-bearing deposits grew $650 million, or 14%, primarily due to
additional deposits from mutual funds. Customers use noninterest-bearing
deposits for transaction settlements and to compensate State Street for
services.
ASSETS
State Street's assets consist primarily of short-term money market assets and
investment securities, which are generally more marketable and have less credit
risk than a loan portfolio. Investment securities, principally classified as
available-for-sale, are comprised of U.S. Treasury and Agency securities,
highly- rated municipal securities, asset-backed securities, and non-U.S.
government bonds. Interest-bearing deposits with banks are short-term,
multicurrency instruments, primarily Eurocurrency placements, invested with
major U.S. and non-U.S. banks.
Average Assets
Investments ............................. 74%
Loans ................................... 15%
Other Assets ............................ 8%
Cash .................................... 3%
During 1997, the loan portfolio comprised 15% of State Street's assets.
Approximately one-third of the loan portfolio supports the liquidity needs of
institutional investors in their trading and settlement activity. These loans
are short-term, with relatively low credit risk.
Average interest-earning assets increased $5.1 billion, or 19%,
in 1997. Total investment securities grew $2.4 billion, or 30%, from 1996, with
the majority of growth occurring in the U.S. Treasury and Agency portfolio.
Interest-bearing deposits with banks increased 21% from 1996, to $8.5 billion.
Total loans increased 19%, to $5.4 billion.
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
their balance sheet value. See Note T to the Consolidated Financial Statements,
page 39, for a further discussion.
FURTHER INFORMATION
Further quantitative information on State Street's assets and liabilities is
furnished in the Supplemental Financial Data on page 44 and Notes C-H to the
Consolidated Financial Statements, pages 30-32.
LIQUIDITY AND CAPITAL
- --------------------------------------------------------------------------------
LIQUIDITY
The primary objective of State Street's liquidity management is to ensure that
the Corporation has sufficient funds to conduct its activities, including
accommodating the transaction and cash management requirements of its customers,
meeting loan commitments, and replacing maturing liabilities. Liquidity is
provided by the Corporation's access to global financial markets, its ability to
gather additional deposits from its customers, maturing short-term assets, the
sale of securities, and payment of loans. Customer funds provide a
multicurrency, geographically diverse source of liquidity.
State Street maintains a large portfolio of liquid assets. When liquidity is
measured by the ratio of liquid assets to total assets, State Street ranks among
the highest 10% of U.S. banking companies. At December 31, 1997, the
Corporation's liquid assets were 77% of total assets.
State Street manages its business to maintain high ratings on its debt, as
measured by independent credit rating agencies. This not only ensures minimum
borrowing costs, but also enhances State Street's liquidity by ensuring the
largest possible market for the Corporation's debt. State Street's senior debt
is rated AA- by Standard & Poor's, A1 by Moody's Investors Service and AA by
Fitch IBCA. State Street Bank's long-term certificate of deposit ratings are AA
by Standard & Poor's, Aa2 by Moody's Investors Service and AA+ by Fitch IBCA.
The Consolidated Statement of Cash Flows on page 26 provides additional
information.
CAPITAL
State Street ensures it is well capitalized in order to support its customers.
Capital levels provide financial flexibility as well, which facilitates funding
corporate growth and other business needs.
As a state chartered bank and member of the Federal Reserve System, State Street
Bank and Trust Company, State Street's principal subsidiary, is regulated by the
Federal Reserve Board, which has established guidelines for minimum capital
ratios. The Corporation has developed internal capital adequacy policies to
ensure that the Bank meets or exceeds the level required for the "well
capitalized" category, the highest of the Federal Reserve Board's five capital
categories. State Street's capital management emphasizes risk exposure rather
than simple asset levels; at 12.2% the Bank's Tier 1 risk-based capital ratio
significantly exceeds the regulatory minimum of 4% and is among the highest for
U.S. banks. The Corporation's Tier 1 risk-based capital ratio of 13.7% is
likewise among the highest for U.S. bank holding companies. See Note K to the
Consolidated Financial Statements, on page 33, for further information.
In March 1997, State Street issued $300 million of 30-year, 8.035% Capital
Securities, redeemable at the option of State Street in ten years. The Capital
Securities and long-term debt are discussed further in Note H to the
Consolidated Financial Statements, on page 31.
State Street's Board of Directors has authorized the purchase of common stock
for use in employee benefit programs and for general corporate purposes. State
Street purchased 2.8 million shares in 1997. As of December 31, 1997, 3 million
shares were authorized to be purchased.
- ----------------------------------------------------------------
DIVIDENDS AND COMMON STOCK
Market Price
------------------------------
Dividends End of
Declared Low High Period
- ----------------------------------------------------------------
1996
First .......... $ .09 $ 20 7/8 $ 25 1/2 $ 25
Second ......... .095 22 9/16 26 7/8 25 1/2
Third .......... .095 23 11/16 28 15/16 28 11/16
Fourth ......... .10 28 3/8 34 1/4 32 5/16
1997
First .......... .10 31 5/16 42 1/16 34 11/16
Second ......... .11 33 1/4 54 1/4 46 1/4
Third .......... .11 46 5/8 61 9/16 60 15/16
Fourth ......... .12 51 3/8 63 11/16 58 3/16
- ----------------------------------------------------------------
Dividends Per Share
(Dollars)
1983-1997 .05 .34 .38 .44
Consistent earnings growth has enabled State Street to increase its quarterly
dividend twice each year since 1978. Over the last fifteen years, the dividend
has grown 16% annually on a compound basis.
There were 6,199 stockholders of record at year-end 1997.
RISK MANAGEMENT
- --------------------------------------------------------------------------------
In providing services for institutional investors globally, State Street must
manage and control certain inherent risks. These include counterparty risk,
credit risk, fiduciary risk, operations and settlement risk, and market risk.
Risk management is an integral part of State Street's business activities and is
centrally organized with close ties to the business units. This structure allows
for corporate risk management across the business areas while individual line
areas remain responsible for risk management in their units.
Risk management emphasizes establishing specific authorization levels and
limits. Exposure levels are reviewed and modified as required by changing
conditions. Business-risk concentration analysis includes specific industry
lending concentrations, country limits, and individual counterparty limits. In
managing country risk, State Street considers a variety of issues, including
those related to credit quality, asset concentration, liquidity and transfer
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 all aspects of credit risk. These include a
comprehensive credit-review and approval process that involves the assignment of
risk ratings to all loans and off-balance sheet credit exposures. Rigorous
credit approval processes cover traditional credit facilities, foreign exchange,
placements, credit-enhancement services, securities lending and
securities-clearing facilities.
Fiduciary risk is the risk of financial loss as a consequence of breaching a
fiduciary duty to a customer. Business units are responsible for operating
within the rules and regulations applicable to their businesses, including any
corporate guidelines. The Corporate Fiduciary Review Committee and the
Compliance Committee work with the business units to oversee adherence to
corporate standards.
Because State Street is a large servicer and manager of financial assets on a
global scale, management of operations and settlement risk is an integral part
of the management process throughout the Corporation. This 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 minimized by automation, standardized operating
procedures and insurance.
MARKET RISK: FOREIGN EXCHANGE AND INTEREST RATE SENSITIVITY
State Street engages in trading and investment activities to serve customers'
investment and trading needs, contribute to overall corporate earnings, and
enhance liquidity. In the conduct of these activities, the Corporation is
subject to, and assumes, risk. Market risk is the risk of an adverse financial
impact from changes in market prices, such as interest rates and foreign
exchange rates. The level of risk State Street assumes is a function of the
Corporation's overall objectives and liquidity needs, customer requirements, and
market volatility.
State Street manages its overall market risk through a comprehensive risk
management framework that includes a market risk management group that reports
independently to senior management. Market risk from foreign exchange and
trading activities is controlled through established limits on aggregate and net
open positions, sensitivity to changes in interest rates, and concentrations.
These limits are supplemented by stop-loss thresholds. The Corporation uses a
variety of risk management tools and techniques, including value at risk, to
measure, monitor and control market risk. All limits and measurement techniques
are reviewed and adjusted as necessary on a regular basis by business managers,
the market risk management group and senior management.
State Street uses foreign exchange contracts and a variety of financial
derivative instruments to support customers' needs, conduct trading activities,
and manage its interest rate and currency risk. These activities are designed to
create trading revenue or hedge net interest revenue. In addition, the
Corporation provides services related to derivative instruments in its role as
both a manager and servicer of financial assets.
State Street's customers use derivatives to manage the financial risks
associated with their investment goals and business activities. With the growth
of cross-border investing, customers have an increasing need for foreign
exchange forward contracts to convert currency for international investment and
to manage the currency risk in international investment portfolios. As an active
participant in the foreign exchange markets, State Street provides foreign
exchange contracts and over-the-counter options in support of these customer
needs.
TRADING ACTIVITIES: FOREIGN EXCHANGE AND INTEREST RATE SENSITIVITY
As part of its trading activities, the Corporation assumes positions in both the
foreign exchange and interest rate markets by buying and selling cash
instruments and using financial derivatives, including forward foreign exchange
contracts, foreign exchange and interest rate options, and interest rate swaps.
As of December 31, 1997, the notional amount of these derivative instruments was
$94 billion, of which $92 billion was foreign exchange forward contracts. Long
and short foreign exchange forward positions are closely matched to minimize
currency and interest rate risk. All foreign exchange contracts are valued daily
at current market rates.
The Corporation uses a variety of risk measurement and estimation techniques
including value at risk. Value at risk is an estimate of potential loss for a
given period of time within a stated statistical confidence interval. State
Street estimates value at risk daily for all material trading positions using a
methodology based on the distribution of historical market movements. The
Corporation has adopted standards for estimating value at risk, and maintains
capital for market risk, in accordance with the Federal Reserve's Capital
Adequacy Guidelines for market risk. Value at risk is estimated for a 99%
one-tail confidence interval and an assumed one-day holding period using an
historical observation period of one year. A 99% one-tail confidence interval
implies that daily trading losses should not exceed the estimated value at risk
more than 1% of the time, or approximately three days out of the year. The
methodology takes into account observed correlations between interest rates and
foreign exchange rates, and the resulting diversification benefits provided from
the mix of the Corporation's trading positions.
Like all quantitative measures, value at risk is subject to certain limitations
and assumptions inherent to the methodology. State Street's methodology uses an
assumption of normal distribution of market returns. The estimate is calculated
using static portfolios consisting of positions held at the end of the trading
day in Boston. Implicit in the estimate is the assumption that no intraday
action is taken by management during adverse market movements. As a result, the
methodology does not represent risk associated with intraday changes in
positions or intraday price volatility.
The following table presents State Street's market risk for its trading
activities as measured by its value at risk methodology:
- -----------------------------------------------------------------
VALUE AT RISK FOR 1997
(Dollars in millions) Average Maximum Minimum
- -----------------------------------------------------------------
Foreign exchange contracts $ .6 $ 1.7 $ .2
Interest rate contracts .1 .3
- -----------------------------------------------------------------
State Street compares actual daily profit and losses from trading activities to
estimated one-day value at risk. During 1997, State Street did not experience
any foreign exchange trading loss in excess of its end of day value at risk
estimate.
NON-TRADING ACTIVITIES: FOREIGN EXCHANGE
State Street has approximately $13 billion of non-U.S. denominated non-trading
assets as of December 31, 1997, which are primarily funded by non-U.S.
denominated deposits. State Street's non-U.S. denominated non-trading assets are
comprised of 48 non-U.S. currencies. Approximately 90% of these assets are in 13
major currencies. Since non-trading assets are generally invested in the same
currency in which the initial deposits are received, the risk associated with
changes to currency exchange rates is minimal. To the extent that deposits are
not reinvested in the same currency, the resulting net currency positions are
managed as part of the trading risk as discussed above.
In general, the maturities of the non-trading assets and liabilities are also
matched and are short term. To the extent duration mismatches exist, they are
managed as part of State Street's normal asset/liability management activities
and the related market risk is included in the following non-trading interest
rate sensitivity disclosure.
NON-TRADING ACTIVITIES: INTEREST RATE SENSITIVITY
The objective of interest rate sensitivity management is to provide sustainable
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 by
adjusting the mix, yields, and maturity or repricing characteristics, based on
market conditions. Because interest-bearing sources of funds are predominantly
short-term, State Street maintains a generally short-term structure for its
interest-earning assets, including money market assets, investments and loans.
Off-balance sheet financial instruments, including interest rate swaps, are used
minimally as part of overall asset and liability management to augment State
Street's management of interest rate exposure. State Street uses three tools for
measuring interest rate risk: simulation, duration and gap analysis.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
INTEREST SENSITIVITY POSITION AT DECEMBER 31, 1997 Interest Sensitivity Period in Months
--------------------------------------------------------------------
(Dollars in millions) Balance 0 to 3 4 to 6 7 to 12 13 to 24 over 24
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits with banks ............. $ 10,080 $ 9,116 $ 484 $ 480 $ $
Other money market assets (1) .................... 3,870 3,870
Investment securities ............................ 10,375 1,705 1,310 3,132 2,548 1,680
Loans ............................................ 4,693 2,974 274 212 219 1,014
-------- ------- ------ ------ ------ ------
Total interest-earning assets .................. 29,018 17,665 2,068 3,824 2,767 2,694
-------- ------- ------ ------ ------ ------
Interest-bearing liabilities:
Domestic deposits ................................ 2,374 2,200 3 10 161
Non-U.S. deposits ................................ 14,719 14,706 13
Federal funds purchased and repurchase agreements 7,598 7,536 62
Other interest-bearing liabilities ............... 1,427 653 774
-------- ------- ------ ------ ------ ------
Total interest-bearing liabilities ............. 26,118 25,095 78 10 935
-------- ------- ------ ------ ------ ------
(7,430) 1,990 3,814 2,767 1,759
Interest rate swaps .............................. 243 (1) (46) (196)
------- ------ ------ ------ ------
Interest rate sensitivity position ................. (7,187) 1,990 3,813 2,721 1,563
Cumulative interest rate sensitivity position ...... (7,187) (5,197) (1,384) 1,337 2,900
Cumulative gap percentage (2) ...................... (21)% (15)% (4)% 4% 9%
- -----------------------------------------------------------------------------------------------------------------------------
(1) Includes adjustments to normalize the one-day position and for earnings credits
(2) Cumulative interest rate sensitivity position as a percent of total average earning assets
</TABLE>
Key assumptions in the simulation, duration and gap models include the timing of
cash flows, maturities and repricing of financial instruments, changes in market
conditions, loan volumes and pricing, deposit sensitivity and management's
capital planning. These assumptions are inherently uncertain and as a result,
the models cannot precisely estimate net interest revenue or precisely predict
the impact of changes in interest rates on net interest revenue and economic
value. Actual results may differ from simulated results due to the timing,
magnitude and frequency of interest rate changes and changes in market
conditions and management strategies, among other factors.
Simulation models facilitate the evaluation of the potential range of net
interest revenue under "most likely" and alternative interest rate scenarios.
Based upon results of the simulation model as of December 31, 1997, the
Corporation would expect a decrease in net interest revenue of $32 million over
the following 12 months for an immediate 100 basis points increase in interest
rates. Conversely, if interest rates immediately decreased by 100 basis points,
the Corporation would expect a $14 million increase in net interest revenue.
Duration measures the change in the economic value of assets and liabilities for
given changes in interest rates. Based upon the results of the duration model as
of December 31, 1997, the Corporation would expect a decrease in the economic
value of assets net of liabilities of $19 million as a result of an immediate
increase in interest rates of 100 basis points. In the event of an immediate
decrease of 100 basis points to interest rates, there is an expected increase of
$12 million to the economic value of assets net of liabilities.
The third measure of interest rate risk, gap analysis, is the difference in
asset and liability repricing on a cumulative basis within a specified
timeframe. At year-end 1997, within the subsequent 12 months interest-bearing
liabilities were repricing faster than interest-earning assets, as has been
typical for State Street. If all other variables remained constant, in the short
term, falling interest rates would lead to net interest revenue which is higher
than it would otherwise have been; rising rates would lead to lower net interest
revenue. Other important determinants of net interest revenue are rate levels,
balance sheet growth and mix, and interest rate spreads.
NEW ACCOUNTING DEVELOPMENTS
- --------------------------------------------------------------------------------
Information related to new accounting developments appears in Note A to the
Consolidated Financial Statements on page 28.
<PAGE>
Exhibit 13.3
[Graphic omitted: Photo]
Marshall N. Carter
Chairman and Chief Executive Officer
[Graphic omitted: Photo]
David A. Spina
President and Chief Operating Officer
To Our Stockholders
1997 was a year of outstanding financial performance against our strategic plan.
We achieved our twentieth consecutive year of double-digit earnings per share
growth, a record in which we take great pride. We continued to invest in the
people, technology and new products that will allow us to anticipate and serve
the evolving needs of our customers around the world. We recorded a record level
of new business during the year. State Street remains focused on serving
institutional investors worldwide.
FINANCIAL RESULTS
Our 1997 financial results were outstanding, exceeding both our financial goals
and our historical trends. Earnings per share of $2.32 were up 30% from 1996.
This compares to a compound annual growth rate of 17% over the last 15 years.
That historical rate is consistent with our primary financial goal of achieving
sustainable real growth in earnings per share. At $2.3 billion, revenue
increased 24% from the previous year. This is above our 17% compound annual
growth rate achieved in the decade to date and the 15% rate needed to meet our
goal of repeating our revenue record of the 1980's in the 1990's. Return on
stockholders' equity was 20.6%, well above our goal of 18%.
Our record-setting performance was primarily attributable to strong, fundamental
growth throughout State Street. Additionally, our business strategies have
positioned State Street to benefit from several external factors that favored us
in 1997, including strong securities markets, robust mutual funds inflows,
active currency markets, and steady growth in cross-border investing. Since
external factors may not be as favorable in the future, we expect State Street's
future earnings per share growth rates to be more in keeping with our long-term,
historical performance.
We remain confident that execution of our strategic business plan will continue
to create value for our stockholders over the long term. In 1997, our 20 years
of consistent performance, our strong performance during the year, and the
prospects for State Street's future growth were recognized by the market. The
stock price increased 80%, contributing to an annual total return to
stockholders of 23% over the past five years.
ADDING VALUE THROUGH A
BROAD RANGE OF SERVICES
Our commitment is clear. State Street has earned its reputation for working with
customers to meet their changing needs by developing the products and services
they require. WE CONTINUE TO BUILD OUR BUSINESS FOR FUTURE GROWTH BY DEVELOPING
A BROADER PRODUCT ARRAY FOR OUR CUSTOMERS.
Global Link(SM), the integrated, electronic market information, trade execution,
and reporting platform we introduced in August 1996, now provides eight services
via the Bridge Information Systems network. The Global Link service suite
includes unique currency markets research, currency management tools,
multi-market equity execution, and real-time foreign exchange trading.
Our mutual funds administration services saw strong growth in 1997, as more
mutual fund companies sought to outsource these complex regulatory compliance
functions. In 1997, mutual funds under administration increased 42%, and we are
prepared to serve customers' growing demand for these services.
Our compliance monitoring services are providing customers with valuable
solutions for another important challenge. Our Investment Policy MonitorSM
product, significantly enhanced in 1997, allows managers and sponsors to review
their investment strategies to ensure they comply with plan or portfolio
guidelines.
With established mutual fund servicing capabilities in the Cayman Islands,
Dublin, Luxembourg, Sydney, and Toronto, we are successfully converting our U.S.
market leadership to global leadership. As U.S.-style mutual funds continue to
win acceptance in the global marketplace, we are prepared to serve customers'
growing demand for offshore and in-country mutual funds services.
In investment management, we are focused on continuing the expansion of both our
global reach and diversified product lines. In 1997, we began offering
investment management capabilities in Hong Kong and Munich, and opened an office
in Santiago, Chile. We added a number of new investment strategies, including
aggressive growth strategies. In addition, we broadened the range of investment
management strategies we offer for high-net-worth individuals, introducing
innovative services like those focusing on the specific investment needs of
entrepreneurs. In the defined contribution plan market, we continued to add new
customers to our distinguished roster.
We add value as well through the delivery methods we develop for our new
products and services. We released new versions of many of our on-line delivery
products, including Ino Sight(SM), which uses leading-edge technology to deliver
increasing amounts of information. We design our services to be Internet-enabled
where feasible, anticipating that our customers will request greater Internet
access as security standards improve.
THE FUTURE
EXPANDING RELATIONSHIPS ARE A KEY ELEMENT OF STATE STREET'S BUSINESS GROWTH. In
1997, our existing customers accounted for about 80% of the increase in our
revenue through their internal growth, the assignment of additional assets to
State Street for management or custody, and their use of additional products and
services. And, of course, each new customer we added in 1997 is an opportunity
to grow a relationship in the future.
Investing for Growth
Our outstanding performance of 1997, both in financial results and in the
quality, breadth and reliability of our services, is attributable to our ongoing
investments in support of our strategic plan. ANTICIPATING INDUSTRY CHANGES AND
INVESTING TO DEVELOP THE RESOURCES TO HANDLE THEM BEFORE THEY OCCUR IS AN
IMPORTANT ELEMENT OF STATE STREET'S INDUSTRY LEADERSHIP. Investments in
technology, global expansion, and product development early in this decade drove
our strong growth in 1996 and 1997. We continue to invest for our future. For
example, our comprehensive approach to the Year 2000 challenge is attracting new
customers looking to State Street as part of their Year 2000 solution. We are
implementing solutions for the rapid integration of Europe's new single
currency, the euro, that will enable institutional investors to focus on
business as usual. We are expanding our capacity and providing further back-up
for our 24-hour, 365-day operating capabilities with another global data center,
located in Kansas City, that will open in 1999.
A Growing Market
THE MARKET FOR SERVICES TO INSTITUTIONAL INVESTORS IS LARGE AND GROWING.
Analysts estimate the $6 trillion global mutual fund industry will grow 15%
annually over the next five years, the $8 trillion pension fund industry 10%,
the $9 trillion insurance industry 9% and the $15 trillion asset management
industry 10%. LONG-TERM, GLOBAL TRENDS BODE WELL FOR THE BUSINESS IN WHICH STATE
STREET IS INVESTING. The aging of the world's population, pressures on
pay-as-you-go pension systems, increasing cross-border investing, and the
growing complexity of investment strategies will continue to drive demand for
our services for decades to come. (We discuss these important trends further in
the following section.)
GROWING IN A GROWING BUSINESS
State Street is well positioned to meet the needs of institutional investors
around the world. We are introducing a steady stream of new products and
services to the global marketplace.
We will continue to develop and refine our strong revenue flows, focus on
increasing profit margins, develop and manage our migration to the technology
platforms of the 21st century, and carefully manage the pace at which we
introduce new products and capabilities. We know our team of 14,000 State Street
employees around the world is committed to these objectives and to our company's
success.
/s/ Marshall N. Carter /s/ David A. Spina
Marshall N. Carter David A. Spina
Chairman and President and
Chief Executive Officer Chief Operating Officer
<PAGE>
Exhibit 13.4
<TABLE>
CONSOLIDATED STATEMENT OF INCOME State Street Corporation
<CAPTION>
(Dollars in millions, except per share data) Year ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------
FEE REVENUE
<S> <C> <C> <C>
Fiduciary compensation ....................................... $ 1,252 $ 1,018 $ 824
Foreign exchange trading ..................................... 245 126 141
Servicing and processing ..................................... 159 125 113
Other ........................................................ 17 33 41
------- ------- ------
Total fee revenue ........................................ 1,673 1,302 1,119
NET INTEREST REVENUE
Interest revenue ............................................. 1,755 1,443 1,336
Interest expense ............................................. 1,114 892 907
------- ------- ------
Net interest revenue - Note L ............................ 641 551 429
Provision for loan losses - Note D ........................... 16 8 8
------- ------- ------
Net interest revenue after provision for loan losses ..... 625 543 421
------- ------- ------
TOTAL REVENUE ............................................ 2,298 1,845 1,540
OPERATING EXPENSES
Salaries and employee benefits - Note O ...................... 973 775 651
Transaction processing services .............................. 184 164 125
Equipment .................................................... 164 138 124
Occupancy .................................................... 119 100 84
Other - Note M ............................................... 294 221 190
------- ------- ------
Total operating expenses ................................. 1,734 1,398 1,174
------- ------- ------
Income before income taxes ............................... 564 447 366
Income taxes - Note P ........................................ 184 154 119
------- ------- ------
NET INCOME ............................................... $ 380 $ 293 $ 247
======= ======= ======
EARNINGS PER SHARE - NOTE Q
Basic ...................................................... $ 2.37 $ 1.81 $ 1.50
Diluted .................................................... 2.32 1.78 1.47
AVERAGE SHARES OUTSTANDING (in thousands)
Basic ...................................................... 160,662 161,783 165,107
Diluted ...................................................... 163,789 164,375 167,687
- ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
State Street Corporation CONSOLIDATED STATEMENT OF CONDITION
<CAPTION>
(Dollars in millions, December 31, 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks - Note K ..................................... $ 2,411 $ 1,623
Interest-bearing deposits with banks ................................. 10,080 7,565
Securities purchased under resale agreements and securities
borrowed - Note F .................................................. 5,544 4,613
Federal funds sold ................................................... 621 1,155
Trading account assets ............................................... 205 255
Investment securities (principally available for sale) - Notes C and F 10,375 9,387
Loans (less allowance of $83 and $73) - Note D ....................... 5,479 4,640
Premises and equipment - Notes E and H ............................... 500 468
Customers' acceptance liability ...................................... 45 35
Accrued income receivable ............................................ 566 442
Other assets ......................................................... 2,149 1,341
-------- --------
TOTAL ASSETS ................................................... $ 37,975 $ 31,524
======== ========
LIABILITIES
Deposits:
Noninterest-bearing ................................................ $ 7,785 $ 6,395
Interest-bearing:
Domestic ......................................................... 2,374 2,071
Non-U.S. ......................................................... 14,719 11,053
-------- --------
Total deposits ................................................. 24,878 19,519
Securities sold under repurchase agreements - Note F ................. 7,409 7,387
Federal funds purchased .............................................. 189 117
Other short-term borrowings .......................................... 609 649
Notes payable - Note G ............................................... 44 86
Acceptances outstanding .............................................. 45 35
Accrued taxes and other expenses - Note P ............................ 831 657
Other liabilities .................................................... 1,201 823
Long-term debt - Note H .............................................. 774 476
-------- --------
TOTAL LIABILITIES .............................................. 35,980 29,749
STOCKHOLDERS' EQUITY - NOTES H, I, J, K AND R
Preferred stock, no par: authorized 3,500,000; issued none
Common stock, $1 par: authorized 250,000,000; issued 167,223,000
and 83,615,000 .................................................... 167 84
Surplus .............................................................. 102 105
Retained earnings .................................................... 1,914 1,694
Net unrealized gain on available-for-sale securities ................. 17 12
Treasury stock, at cost (6,387,000 and 2,461,000 shares) ............. (205) (120)
-------- --------
TOTAL STOCKHOLDERS' EQUITY ..................................... 1,995 1,775
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................... $ 37,975 $ 31,524
======== ========
- ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS State Street Corporation
<CAPTION>
(Dollars in millions) Year ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income .................................................. $ 380 $ 293 $ 247
Noncash charges for depreciation, amortization, provision for
loan losses and deferred income taxes ..................... 271 221 140
------- ------- -------
Net income adjusted for noncash charges ................. 651 514 387
Adjustments to reconcile to net cash provided (used) by
operating activities:
Securities gains, net ..................................... (2) (5) (12)
Net change in:
Trading account assets .................................. 50 249 24
Other, net .............................................. (449) (161) (88)
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............. 250 597 311
INVESTING ACTIVITIES
Payments for purchases of:
Available-for-sale securities ............................. (5,985) (6,912) (2,152)
Held-to-maturity securities ............................... (976) (906) (2,125)
Lease financing assets .................................... (992) (539) (621)
Premises and equipment .................................... (158) (114) (96)
Proceeds from:
Maturities of available-for-sale securities ............... 4,137 3,442 556
Maturities of held-to-maturity securities ................. 942 870 2,529
Sales of available-for-sale securities .................... 836 465 3,654
Principal collected from lease financing .................. 46 52 63
Net (increase) decrease in:
Interest-bearing deposits with banks ...................... (2,515) (1,590) (1,128)
Federal funds sold, resale agreements and securities borrowed (397) (14) (3,099)
Loans ..................................................... (630) (572) (633)
------- ------- -------
NET CASH USED BY INVESTING ACTIVITIES ................. (5,692) (5,818) (3,052)
------- ------- -------
FINANCING ACTIVITIES
Proceeds from issuance of:
Long-term debt ............................................ 300 350
Notes payable ............................................. 177 175
Nonrecourse debt for lease financing ...................... 792 404 501
Common and treasury stock ................................. 16 12 5
Payments for:
Maturity of notes payable ................................. (42) (257)
Nonrecourse debt for lease financing ...................... (67) (66) (62)
Long-term debt ............................................ (2) (1) (1)
Cash dividends ............................................ (69) (61) (56)
Purchase of common stock .................................. (110) (131) (17)
Net increase in:
Deposits .................................................. 5,358 2,872 2,049
Short-term borrowings ..................................... 54 2,123 471
------- ------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............. 6,230 5,422 3,065
------- ------- -------
NET INCREASE .......................................... 788 201 324
Cash and due from banks at beginning of period .............. 1,623 1,422 1,098
------- ------- -------
CASH AND DUE FROM BANKS AT END OF PERIOD .............. $ 2,411 $ 1,623 $ 1,422
======= ======= =======
SUPPLEMENTAL DISCLOSURE
Interest paid ............................................. $ 1,122 $ 885 $ 903
Income taxes paid ......................................... 112 97 98
- ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
State Street Corporation CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' REPORT
<CAPTION>
(Dollars in millions) Year ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning of year ................................ $ 84 $ 83 $ 83
Stock dividend, two-for-one split ........................... 83
Common stock issued (920,016 and 247,850 shares in 1996 and 1995) 1
------- ------- -------
Balance at end of year ................................... 167 84 83
SURPLUS
Balance at beginning of year ................................ 105 40 37
Common stock issued ......................................... 3 70 3
Treasury stock issued ....................................... (16) (12) (2)
Stock options exercised ..................................... 10 7 2
------- ------- -------
Balance at end of year ................................... 102 105 40
------- ------- -------
RETAINED EARNINGS
Balance at beginning of year ................................ 1,694 1,465 1,273
Stock dividend, two-for-one split ........................... (83)
Net income .................................................. 380 293 247
Cash dividends declared ($.44, $.38 and $.34 per share) ..... (69) (61) (56)
Currency translation ........................................ (8) (3) 1
------- ------- -------
Balance at end of year ................................... 1,914 1,694 1,465
------- ------- -------
TREASURY STOCK, AT COST
Balance at beginning of year ................................ (120) (13)
Common stock acquired (2,759,866, 2,698,900 and 416,200 shares) (110) (131) (17)
Treasury stock issued (1,293,832, 545,591 and 108,916 shares) 25 24 4
------- ------- -------
Balance at end of year ................................... (205) (120) (13)
------- ------- -------
NET UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES
Balance at beginning of year ................................ 12 13 (56)
Changes in unrealized gain (loss) ........................... 5 (1) 69
------- ------- -------
Balance at end of year ................................... 17 12 13
------- ------- -------
TOTAL STOCKHOLDERS' EQUITY ............................... $ 1,995 $ 1,775 $ 1,588
======= ======= =======
- ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS State Street Corporation
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
State Street Corporation ("State Street," "the Corporation"), formerly State
Street Boston Corporation, is a financial services corporation that provides
banking, global custody, investment management, administration and securities
processing services to both U.S. and non-U.S. customers. State Street reports
three lines of business: Services for Institutional Investors include
accounting, custody, daily pricing, administration, foreign exchange, cash
management and information services to support institutional investors and for
large portfolios of investment assets. Investment Management provides an
extensive array of services that manage financial assets worldwide for both
institutional and individuals, and recordkeeping and investment services for
defined contribution plans. Commercial Lending activities include loans and
other credit services for regional middle-market companies, and in selected
industries nationwide, broker/ dealers, leasing, and international trade
finance.
The accounting and reporting policies of 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 and its subsidiaries, including its principal
subsidiary, State Street Bank and Trust Company ("State Street Bank"). The
preparation of financial statements requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. 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. Investments in 50%-owned affiliates are accounted
for by the equity method. Certain previously reported amounts have been
reclassified to conform to the current method of presentation.
For the Consolidated Statement of Cash Flows, State Street has defined cash
equivalents as those amounts included in the Consolidated Statement of Condition
caption, "Cash and due from banks."
In 1996, Statement of Financial Accounting Standard ("SFAS") No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinquishements
of Liabilities" was issued. State Street adopted certain provisions of this
statement on January 1, 1997, which did not have a material impact on the
financial statements. The remaining provisions of this statement are effective
for fiscal years beginning after December 31, 1997 and these provisions are not
expected to have a material impact on the financial statements.
In 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued. This
statement establishes standards for reporting comprehensive income and its
components and requires this disclosure be added as a new section in a financial
statement. This statement is effective for fiscal years beginning after December
31, 1997. State Street will adopt the new disclosures required by SFAS No. 130
in 1998.
In 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" was issued. This statement establishes standards for reporting
information about operating segments in annual and interim financial statements.
This statement is effective for annual periods beginning after December 15,
1997, and for interim periods beginning after December 15, 1998. State Street
will adopt the new disclosures required by SFAS No. 131 for the year ended
December 31, 1998. State Street does not expect its current disclosures to
change significantly under SFAS No. 131.
RESALE AND REPURCHASE AGREEMENTS; SECURITIES BORROWED. State Street purchases
U.S. Treasury and Federal agency securities ("U.S. Government securities") under
agreements to resell the securities. These purchases are recorded as securities
purchased under resale agreements, an asset 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. State Street enters into sales of 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.
Securities borrowed are recorded at the amount of cash collateral deposited with
the lender. State Street monitors daily its market exposure with respect to
securities borrowed transactions and requests that excess collateral be returned
or that additional securities be provided as needed.
SECURITIES. Debt securities are held in both the investment and trading account
portfolios. State Street accounts for debt and equity securities classified as
available for sale at fair value and the after-tax unrealized gains and losses
are reported as a separate component of stockholders' equity. Securities
classified as held to maturity are stated at cost, adjusted for amortization of
premiums and accretion of discounts. Gains or losses on sales of
available-for-sale securities 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.
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.
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 adverse situations that may affect the borrowers' ability to
repay, timing of future payments, estimated value of underlying collateral and
the performance of individual credits in relation to contract terms and other
relevant factors. 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.
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.
CURRENCY TRANSLATION. The assets and liabilities of non-U.S. 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 non-U.S. subsidiaries, net of any currency hedges and
related taxes, are credited or charged to retained earnings. Gains or losses
from other translations are included in fee revenue.
DERIVATIVE FINANCIAL INSTRUMENTS. State Street uses three methods to account for
derivative financial instruments: the deferral method, accrual method, and fair
value method.
Interest rate contracts that are used for balance sheet management are accounted
for under the deferral method. The basis of the contract is capitalized and any
gain or loss is deferred and amortized over the life of the hedged asset or
liability as an adjustment to the interest revenue or interest expense.
Interest rate swaps that are entered into as part of interest rate management
are accounted for using the accrual method. Interest receivable or payable
payments under the terms of the interest rate swap are accrued over the period
to which the payment relates. The interest payments accrued and any fees paid at
inception are recorded as an adjustment to the interest revenue or interest
expense of the underlying asset or liability.
In order to qualify for deferral or accrual accounting, interest rate contracts
must meet the following criteria: the item being hedged must expose State Street
to interest rate risk, it is probable that the contract will offset interest
rate risk associated with the hedged item, and the contract must be designated
as a hedge of the item. State Street periodically evaluates its positions
against these criteria.
Contracts entered into for trading purposes and contracts that do not meet the
criteria for deferral or accrual accounting are carried at fair value. These
contracts are recorded in other assets or other liabilities and are valued
periodically. The resulting gain or loss is recorded in fee revenue. State
Street uses the mark-to-market method to account for: foreign exchange trading
contracts, foreign exchange balance sheet management contracts, and interest
rate trading contracts.
The gross amount of unrealized gains and losses on foreign exchange and interest
rate contracts are reported separately as other assets and other liabilities,
respectively, in the Consolidated Statement of Condition, except where such
gains and losses arise from contracts covered by qualifying master netting
agreements.
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.
EARNINGS PER SHARE. In 1997, SFAS No. 128, "Earnings Per Share" was issued. This
statement establishes standards for computing and presenting earnings per share.
The statement replaces primary earnings per share with basic earnings per share.
Basic earnings per share excludes all dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share is computed
similarly to the previously reported fully diluted earnings per share. Diluted
earnings per share reflects the potential dilution that could occur if stock
options and stock award grants were exercised. Diluted earnings per share also
includes the assumption that all convertible debt has been converted as of the
beginning of each period. All prior period amounts have been restated to conform
to SFAS No. 128.
NOTE B - ACQUISITIONS
In November 1996, State Street acquired Princeton Financial Systems, Inc.
("PFS") for 923,072 shares of its common stock and cash in a transaction
accounted for as a purchase. PFS provides services and client/server software
for investment managers with particular focus on the insurance industry. The
proforma results of operations adjusted to include PFS for the year ended
December 31, 1995, was not presented, as the results would not have been
significantly different.
NOTE C - INVESTMENT SECURITIES
<TABLE>
<CAPTION>
Available-for-sale securities are recorded at fair value and held-to-maturity securities are recorded at
amortized cost on the Consolidated Statement of Condition. Investment securities consisted of the following at
December 31:
- -----------------------------------------------------------------------------------------------------------------
1997 1996
Amortized Unrealized Fair Amortized Unrealized Fair
(Dollars in millions) Cost Gains Losses Value Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale:
U.S. Treasury and Federal agencies . $4,906 $ 15 $ 2 $4,919 $4,630 $ 18 $ 5 $4,643
State and political subdivisions ... 1,647 17 7 1,657 1,557 10 8 1,559
Asset-backed securities ............ 1,673 1 1 1,673 1,198 3 1 1,200
Collateralized mortgage obligations 574 1 4 571 638 1 8 631
Other investments .................. 654 9 1 662 485 12 2 495
------ ------ ------ ------ ------ ------ ------ ------
Total ............................ $9,454 $ 43 $ 15 $9,482 $8,508 $ 44 $ 24 $8,528
====== ====== ====== ====== ====== ====== ====== ======
Held to maturity:
U.S. Treasury and Federal agencies . $ 893 $ 1 $ 1 $ 893 $ 859 $ 2 $ 2 $ 859
====== ====== ====== ====== ====== ====== ====== ======
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The maturity information for available-for-sale and held-to-maturity securities
at December 31, 1997, is:
- -------------------------------------------------------------------------------
Years
(Dollars in millions) Under 1 1 to 5 6 to 10 Over 10
- --------------------------------------------------------------------------------
Available for sale:
Amortized cost $ 5,253 $ 3,587 $ 223 $ 391
Fair value 5,259 3,605 224 394
Held to maturity:
Amortized cost 644 249
Fair value .... 644 249
- --------------------------------------------------------------------------------
The maturity of asset-backed securities is based upon the expected principal
payments. Securities carried at $5.0 billion and $5.1 billion at December 31,
1997 and 1996, respectively, were designated as pledged securities for public
and trust deposits, borrowed funds and for other purposes as provided by law.
During 1997, gains of $3 million and losses of $1 million were realized on sales
of available-for-sale securities of $836 million. During 1996, gains of $8
million and losses of $3 million were realized on sales of available-for-sale
securities of $465 million. During 1995, gains of $17 million and losses of $5
million were realized on sales of available-for-sale securities of $3.7 billion.
NOTE D - LOANS
The loan portfolio consisted of the following at December 31:
- -------------------------------------------------------------------------------
(Dollars in millions) 1997 1996
- -------------------------------------------------------------------------------
Commercial and financial:
Domestic .................... $ 3,623 $ 3,022
Non-U.S. .................... 900 854
Lease financing:
Domestic .................... 296 304
Non-U.S. .................... 669 415
Real estate .................. 74 118
------- -------
Total loans ............... 5,562 4,713
Less allowance for loan losses (83) (73)
------- -------
Net loans ............. $ 5,479 $ 4,640
======= =======
- -------------------------------------------------------------------------------
Non-accrual loans were $2 million and $12 million at December 31, 1997 and 1996,
respectively. Interest revenue for non-accrual loans under original terms was
less than $1 million and $1 million for 1997 and 1996, respectively. Interest
revenue recognized for non-accrual loans was less than $1 million for both 1997
and 1996.
Changes in the allowance for loan losses for the years ended December 31 were as
follows:
- -------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- -------------------------------------------------------------------------------
Balance at beginning of year ...................... $ 73 $ 63 $ 58
Provision for loan losses ......................... 16 8 8
Loan charge-offs .................................. (8) (5) (7)
Recoveries ........................................ 2 7 4
---- ---- ----
Balance at end of year .......................... $ 83 $ 73 $ 63
==== ==== ====
- -------------------------------------------------------------------------------
NOTE E - PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at December 31:
- -------------------------------------------------------------------------------
(Dollars in millions) 1997 1996
- -------------------------------------------------------------------------------
Buildings and land .............................. $ 294 $ 284
Leasehold improvements .......................... 157 134
Equipment and furniture ......................... 666 562
------ -----
1,117 980
Accumulated depreciation
and amortization ............................. (617) (512)
------ -----
Total premises and equipment ................. $ 500 $ 468
- -------------------------------------------------------------------------------
State Street has entered into noncancelable operating leases for premises and
equipment. At December 31, 1997, future minimum payments under noncancelable
operating leases with initial or remaining terms of one year or more totaled
$947 million. This consisted of $76 million, $79 million, $79 million, $78
million and $75 million for the years 1998 to 2002, respectively, and $560
million thereafter. The minimum rental commitments have been reduced by sublease
rental commitments of $16 million. Nearly all leases include renewal options.
Total rental expense amounted to $64 million, $55 million and
$42 million in 1997, 1996 and 1995, respectively. Rental expense has been
reduced by sublease revenue of $2 million for the year ended 1997 and $1 million
for each year ended 1996 and 1995.
NOTE F - INVESTMENT SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
State Street enters into sales of U.S. Government securities under repurchase
agreements that 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.
Information on these U.S. Government securities, and the related repurchase
agreements including accrued interest, is shown in the table below. This table
excludes repurchase agreements that are secured by securities purchased under
resale agreements and securities borrowed.
Information at December 31, 1997, was as follows:
- -------------------------------------------------------------------------------
U.S. Government Repurchase
Securities Sold Agreements
Amortized Fair Amortized
(Dollars in millions) Cost Value Cost Rate
- -------------------------------------------------------------------------------
Maturity of repurchase agreements:
Overnight ........................ $ 3,038 $ 3,046 $ 3,004 5.28%
2 to 30 days ..................... 274 277 273 5.13
31 to 90 days .................... 377 378 376 5.31
Over 90 days ..................... 15 15 15 4.63
------- ------- -------
Total ........................... $ 3,704 $ 3,716 $ 3,668 5.27
======= ======= =======
- -------------------------------------------------------------------------------
NOTE G - NOTES PAYABLE
State Street Bank issues bank notes from time to time, in an aggregate amount
not to exceed $750 million and with original maturities ranging from 14 days to
five years.
Bank notes, which are not subject to redemption, represent unsecured debt
obligations of State Street Bank. Bank notes are neither obligations of nor
guaranteed by State Street and are recorded net of original issue discount. At
December 31, 1997, and 1996, there were $44 million and $86 million,
respectively, of two-year foreign currency denominated notes outstanding. At
December 31, 1997, the bank notes had an interest rate of 1.15% and will mature
in January 1998.
NOTE H - LONG-TERM DEBT
Long-term debt, less unamortized original issue discount, consisted of the
following at December 31:
- -------------------------------------------------------------------------------
(Dollars in millions) 1997 1996
- -------------------------------------------------------------------------------
8.035% Capital securities B due 2027 $ 300 $
7.94% Capital securities A due 2026 200 200
7.35% Notes due 2026 ............... 150 150
5.95% Notes due 2003 ............... 100 100
9.50% Mortgage note due 2009 ....... 21 23
7.75% Convertible subordinated
debentures due 2008 .............. 3 3
----- -----
Total long-term debt ............ $ 774 $ 476
===== =====
- -------------------------------------------------------------------------------
In 1997 and 1996, State Street established two statutory business trusts, which
collectively issued $500 million of cumulative semi-annual income securities
("capital securities"). The capital securities qualify as Tier 1 Capital under
federal regulatory guidelines. The proceeds of these issuances along with
proceeds of related issuances of common securities of the trusts, were invested
in junior subordinated debentures ("debentures") of State Street. The debentures
are the sole assets of the trusts. State Street owns all of the common
securities of the trusts.
Payments to be made by the trusts on the capital securities are dependent on
payments that State Street has undertaken to make, particularly the payments to
be made by State Street on the debentures. Compliance by State Street would have
the effect of providing a full, irrevocable and unconditional guarantee of the
trust's obligations under the capital securities.
Distributions on the capital securities are included in interest expense and are
payable from interest payments received on the debentures and are due
semi-annually, subject to deferral for up to five years under certain
conditions. The capital securities are subject to mandatory redemption in whole
at the stated maturity upon repayment of the debentures; with the optional
redemption at any time by State Street of the debentures upon the occurance of
certain tax treatment, investment company regulation or capital treatment
changes; or at any time after March 15, 2007 for the capital securities B and
after December 30, 2006 for the capital securities A. Redemptions are based on
declining redemption price to the terms of the trust agreements. All redemptions
are subject to Federal regulatory approval.
In April 1996, a shelf registration statement became effective that allows State
Street to issue up to $500 million of unsecured debt securities or shares of its
preferred stock or both. In June 1996, State Street issued $150 million of 7.35%
notes due 2026, redeemable at the option of the holder in 2006. At December 31,
1997, $350 million of the shelf registration was available for issuance.
The 5.95% notes are unsecured obligations of State Street.
The 9.50% mortgage note was fully collateralized by property at December 31,
1997. The aggregate maturities of this mortgage note are $1 million for the
years 1998 through 2000 and $2 million for 2001 and 2002.
The 7.75% debentures are convertible to common stock at a price of $2.875 per
share, subject to adjustment for certain events. The debentures are redeemable
at par, at State Street's option. During 1997 and 1996, debentures were
converted into 168,692 and 5,217 shares of common stock, respectively. At
December 31, 1997, 937,391 shares of common stock had been reserved for issuance
upon conversion.
NOTE I - STOCKHOLDERS' EQUITY
The authorized number of common shares increased from 112,000,000 at December
31, 1996 to 250,000,000 at December 31, 1997. On May 28, 1997, State Street
distributed a two-for-one stock split in the form of a 100% stock dividend to
shareholders. The par value of these additional shares was capitalized by a
transfer from surplus to common stock. Prior period share and per share amounts
have been restated for the stock split.
The Board of Directors has authorized the repurchase of up to twelve million
shares, adjusted for the two-for-one stock split of State Street's common stock.
Shares purchased under the authorization can be used for employee benefit plans
and general corporate purposes. During 1997 and 1996, State Street purchased
2,759,900 and 5,379,800 shares of its common stock, respectively, at an average
cost of $40 and $24, respectively. As of December 31, 1997, total shares
purchased were 8,990,108.
Under the 1997 Equity Incentive Plan, stock options, stock appreciation rights
("SARs"), restricted and unrestricted stock awards, deferred stock awards and
performance units covering 8,000,000 shares of common stock may be issued. State
Street has stock options and performance units outstanding from previous plans
under which no further grants can be made.
Under these long-term incentive plans the exercise price of non-qualified and
incentive stock options may not be less than the fair value of such shares at
the date of grant and expire no longer than ten years from the date of grant.
Performance units have been granted to officers at the policy-making level.
Performance units are earned over a performance period based on achievement of
goals. Payment for performance units is made in cash equal to the fair market
value of State Street's common stock after the conclusion of each performance
period. During 1997 and 1996, 352,966 and 600,000 shares, respectively, were
awarded under the stock award program, none of which were vested at December 31,
1997. Compensation expense related to performance units and stock awards was $27
million, $19 million and $7 million for 1997, 1996 and 1995, respectively.
Options outstanding and activity for the years ended December 31, consisted of
the following:
- -------------------------------------------------------------------------------
(Total dollars in millions, Option Price
shares in thousands) Shares Per Share Total
- -------------------------------------------------------------------------------
December 31, 1995 . 5,572 $ 5.62-22.66 $ 76
Granted ........ 2,076 26.41-33.88 62
Exercised ...... (1,066) 5.62-14.53 (12)
Canceled ....... (106) 16.13-33.88 (2)
------ ----
December 31, 1996 . 6,476 5.62-33.88 124
Granted ........ 1,393 36.36-56.25 73
Exercised ...... (766) 5.62-36.50 (15)
Canceled ....... (159) 9.31-29.41 (2)
------ ----
December 31, 1997 . 6,944 $ 6.02-56.25 $180
====== ====
In 1995, 654,000 options were exercised at per share prices of $3.21 to $18.19.
At December 31, 1997, a total of 2,433,885 shares under options were
exercisable. At December 31, 1997, 6,606,625 shares under the 1997 Equity
Incentive Plan were available for future grants.
Proforma results of net income and earnings per share using the fair value
method for accounting for stock-based employer compensation plans for the years
ended December 31, 1997, 1996 and 1995 are not presented, as results differ by
two percent or less from those reported.
For purposes of estimating the fair value of State Street's employee stock
options at the grant date, a Black-Scholes option pricing model was used with
the following weighted average assumptions for 1997, 1996 and 1995,
respectively; risk-free interest rates of 6.22%, 6.41%, and 7.11%, dividend
yields of 1.05%, 1.51%, and 2.30%; and volatility factors of the expected market
price of State Street common stock of 28%, 25% and 28%. The weighted average
life of the stock options is 5.5, 6.6 and 6.6 years as of December 31, 1997,
1996 and 1995, respectively. For purposes of the proforma calculation, the
estimated fair value of the options is amortized to expense over the options
vesting period.
NOTE J - SHAREHOLDERS' RIGHTS PLAN
In 1988, State Street declared a dividend of one preferred share purchase right
for each outstanding share of common stock. Under certain conditions, a right
may be exercised to purchase one four-hundredths share of a series of
participating preferred stock at an exercise price of $37.50, 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 September 1998, and may be redeemed at a price of $.0025
per right at any time prior to expiration or the acquisition of 20% of State
Street's common stock. Under certain circumstances, the rights may be redeemed
after they become exercisable and may be subject to automatic redemption.
NOTE K - REGULATORY MATTERS
REGULATORY CAPITAL. State Street is subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and discretionary
actions by regulators that, if undertaken, could have a direct material effect
on State Street's financial statements. Under capital adequacy guidelines, State
Street must meet specific capital guidelines that involve quantitative measures
of State Street's assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. State Street's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require State Street and State Street Bank to maintain minimum risk-based and
leverage ratios as set forth in the table below. The risk-based capital ratios
are Tier 1 capital and Total capital to risk-based assets, and the leverage
ratio is Tier 1 capital to quarterly average assets.
As of December 31, 1997, the most recent filing with the Federal Reserve Bank,
State Street Bank was categorized as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
State Street Bank must exceed the well capitalized guideline ratios, as set
forth in the table, and meet certain other requirements. Management believes
that State Street Bank exceeds all well capitalized requirements and there have
been no conditions or events since the filing that management believes would
change the status of well capitalized.
Effective January 1, 1998, the Federal Reserve Board has amended
the risk-based capital standards to include the calculation of market risk
equivalent assets, to be included in total risk-weighted assets, for
institutions that meet certain requirements. State Street meets the requirements
under this standard and will adopt these amendments on January 1, 1998.
<TABLE>
<CAPTION>
The regulatory capital amounts and ratios were the following at December 31:
- -----------------------------------------------------------------------------------------------------
Regulatory Guidelines (1)
------------------------ State Street State Street Bank
Well ------------ -----------------
(Dollars in millions) Minimum Capitalized 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Risk-based ratios:
Tier 1 capital ............ 4% 6% 13.7% 13.4% 12.2% 12.1%
Total capital ............. 8% 10% 13.8 13.6 12.5 11.9
Leverage ratio .............. 3% 5% 5.9 5.9 5.2 5.3
Tier 1 capital .............. $ 2,259 $ 1,818 $ 1,996 $ 1,632
Total capital ............... 2,274 1,847 2,040 1,611
Risk-based assets:
On-balance sheet .......... $12,647 $10,311 $12,491 $10,234
Off-balance sheet ......... 3,825 3,249 3,825 3,249
------- ------- ------- -------
Total risk-based assets . $16,472 $13,560 $16,316 $13,483
======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------
(1) The regulatory designation of "well capitalized" under prompt corrective action regulations is
not applicable to bank holding companies (State Street). Regulation Y defines well capitalized
for bank holding companies (State Street) for the purpose of determining eligibility for a
streamlined review process for acquisition proposals. For such purposes, well capitalized
requires a minimum Tier 1 risk-based capital ratio of 6% and a minimum total risk-based capital
ratio of 10%.
</TABLE>
CASH, DIVIDEND, LOAN AND OTHER RESTRICTIONS. During 1997, subsidiary banks of
State Street were required by the Federal Reserve Bank to maintain average
reserve balances of $362 million.
Federal and state banking regulations place certain restrictions on dividends
paid by subsidiary banks to State Street. At December 31, 1997, State Street
Bank had $694 million 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, 1997, consolidated retained earnings included $24 million
representing undistributed earnings of 50%-owned affiliates.
State Street has a committed line of credit of $50 million to support its
commercial paper program.
NOTE L - NET INTEREST REVENUE
Net interest revenue consisted of the following for the years ended December 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Revenue:
Deposits with banks ....................................................................... $ 415 $ 337 $ 287
Investment securities:
U.S. Treasury and Federal agencies ...................................................... 361 260 244
State and political subdivisions (exempt from Federal tax) .............................. 76 68 53
Other investments ....................................................................... 161 127 133
Loans ..................................................................................... 341 278 242
Securities purchased under resale agreements, securities borrowed and Federal funds sold .. 393 356 357
Trading account assets .................................................................... 8 17 20
------ ------ ------
Total interest revenue ................................................................ 1,755 1,443 1,336
------ ------ ------
Interest Expense:
Deposits ................................................................................. 512 425 416
Other borrowings ......................................................................... 547 452 483
Long-term debt ........................................................................... 55 15 8
------ ------ ------
Total interest expense ................................................................. 1,114 892 907
------ ------ ------
Net interest revenue ................................................................... $ 641 $ 551 $ 429
====== ====== ======
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE M - OPERATING EXPENSES-OTHER
The other category of operating expenses consisted of the following for the
years ended December 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Professional services ...................................................................... $ 87 $ 61 $ 48
Advertising and sales promotion ............................................................ 48 34 26
Postage, forms and supplies ................................................................ 27 26 24
Telecommunications ......................................................................... 26 23 22
Other ...................................................................................... 106 77 70
---- ---- ----
Total operating expenses-other ......................................................... $294 $221 $190
==== ==== ====
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE N - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
The following is a tabulation of the unaudited quarterly results of operations:
- -------------------------------------------------------------------------------------------------------
(Dollars and shares in millions, 1997 Quarters 1996 Quarters
except per share data) Fourth Third Second First Fourth Third Second First
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fee revenue .................. $ 453 $ 442 $ 404 $ 374 $ 348 $ 324 $ 323 $ 307
Interest revenue ............. 480 452 425 398 386 369 342 346
Interest expense ............. 307 288 271 248 239 230 208 215
----- ----- ----- ----- ----- ----- ----- -----
Net interest revenue ...... 173 164 154 150 147 139 134 131
Provision for loan losses .... 5 5 3 3 2 2 2 2
----- ----- ----- ----- ----- ----- ----- -----
Total revenue ............. 621 601 555 521 493 461 455 436
Operating expenses ........... 473 451 419 391 375 350 345 328
----- ----- ----- ----- ----- ----- ----- -----
Income before income taxes 148 150 136 130 118 111 110 108
Income taxes ................. 47 49 44 44 40 37 39 38
----- ----- ----- ----- ----- ----- ----- -----
Net Income ................ $ 101 $ 101 $ 92 $ 86 $ 78 $ 74 $ 71 $ 70
===== ===== ===== ===== ===== ===== ===== =====
Earnings Per Share:
Basic ..................... $ .63 $ .63 $ .57 $ .54 $ .48 $ .46 $ .44 $ .43
Diluted ................... .61 .62 .56 .53 .47 .45 .44 .42
Average Shares Outstanding:
Basic ..................... 161 160 160 161 161 161 162 163
Diluted ................... 164 164 163 164 164 163 164 166
- -------------------------------------------------------------------------------------------------------
</TABLE>
NOTE O - EMPLOYEE BENEFIT PLANS
RETIREMENT PLANS. State Street and nearly all of 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 millions) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated benefit obligation:
Vested ................................................................................... $ 139 $119 $113
Nonvested ................................................................................ 18 16 13
Additional benefits based on estimated future salary levels ................................ 27 25 23
----- ---- ----
Projected benefit obligation ........................................................... 184 160 149
Plan assets at fair value (primarily listed stocks and fixed income securities) ............ 202 193 178
----- ---- ----
Excess of plan assets over projected benefit obligation ................................ 18 33 29
Unrecognized net asset at transition (amortized over 17.2 years) ........................... (12) (14) (16)
Unrecognized net (gain) loss ............................................................... 3 (3) 8
Unrecognized prior service costs ........................................................... (3) (3) (3)
----- ---- ----
Total prepaid pension expense (included in other assets) ............................... $ 6 $ 13 $ 18
===== ==== ====
Pension expense:
Current service cost ..................................................................... $ 14 $ 13 $ 11
Interest cost on projected benefit obligation ............................................ 13 12 10
Actual return on plan assets ............................................................. (26) (26) (34)
Net amortization and deferral ............................................................ 5 6 16
----- ---- ----
Total pension expense .................................................................. $ 6 $ 5 $ 3
===== ==== ====
Actuarial assumptions:
Discount rate used to determine benefit obligation ................... 7.75% 8.50% 8.00%
Rate of increase for future compensation ............................. 6.00 6.00 5.00
Expected long-term rate of return on plan assets ........................ 10.25 10.25 10.25
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
State Street has partially funded, non-qualified supplemental retirement plans
that provide certain officers with defined pension benefits in excess of
allowable tax deductions. At December 31, 1997, 1996 and 1995, the projected
benefit obligation of these plans was $24 million, $20 million and $15 million
and the related pension expense was $5 million, $4 million and $2 million,
respectively.
Total pension expense for all plans was $18 million, $13 million and $8 million
for 1997, 1996 and 1995, respectively.
Employees of State Street Bank and certain subsidiaries 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 expense
was $11 million, $9 million and $9 million for 1997, 1996 and 1995,
respectively.
POSTRETIREMENT PLAN. State Street Bank and certain subsidiaries provide health
care and life insurance benefits for retired employees. State Street funds
medical and life insurance benefit costs at the same level that expenses are
increased.
The discount rate used in determining the accumulated post-retirement benefit
obligation ("APBO") was 7.75%, 8.50% and 8.00% for 1997, 1996 and 1995,
respectively. The assumed health care cost trend rate used in measuring the APBO
was 3% for 1998, and 4.5% thereafter. If the health care trend rate assumptions
were increased by 1%, the APBO would have increased by 6% as of December 31,
1997, and the aggregate expense for service and interest costs for 1997 would
have increased by 8%.
The following table sets forth the financial status of the postretirement plan
and amounts recognized in the Consolidated Financial Statements as of and for
the years ended December 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees .................................................................................. $ 7 $ 5 $ 5
Fully eligible active employees ........................................................... 4 5 5
Other active employees .................................................................... 6 10 11
---- ---- ----
Total accumulated postretirement benefit obligation ...................................... 17 20 21
Unrecognized transition obligation (amortized over 20 years) ................................ (17) (18) (19)
Unrecognized net gain ....................................................................... 16 12 9
---- ---- ----
Accrued postretirement benefit costs (included in liabilities) .......................... $ 16 $ 14 $ 11
==== ==== ====
Postretirement benefits expense:
Current service cost ...................................................................... $ 1 $ 1 $ 2
Interest cost on APBO ..................................................................... 2 2 2
Net amortization and deferral ............................................................. 1 1
---- ---- ----
Total postretirement benefits expense .................................................. $ 3 $ 4 $ 5
==== ==== ====
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE P - INCOME TAXES
The provision for income taxes included in the Consolidated Statement of Income
consisted of the following:
- -------------------------------------------------
(Dollars in millions) 1997 1996 1995
- -------------------------------------------------
Current:
Federal ................ $ 63 $ 44 $ 32
State .................. 26 20 20
Non-U.S. ............... 41 15 21
----- ----- -----
Total current ........ 130 79 73
Deferred:
Federal ................ 37 59 33
State .................. 17 16 13
----- ----- -----
Total deferred ....... 54 75 46
----- ----- -----
Total income taxes ... $ 184 $ 154 $ 119
===== ===== =====
- -------------------------------------------------
Current and deferred taxes for 1996 and 1995 have been reclassified to reflect
the tax returns as actually filed. Income taxes benefits recorded directly to
stockholders' equity for the years 1997, 1996 and 1995 included $10 million, $7
million and $2 million related to employee stock option exercises and other
stock transactions and ($3) million, less than $1 million and ($51) million
related to fair value adjustments for the investment portfolio. These taxes are
not included in the table above. Income tax expense related to net securities
gains was $1 million, $2 million and $5 million for 1997, 1996 and 1995,
respectively.
Pre-tax income attributable to operations located outside the United States was
$85 million, $42 million and $67 million in 1997, 1996 and 1995, respectively.
Significant components of the deferred tax liabilities and assets at December 31
were as follows:
- -------------------------------------------------
(Dollars in millions) 1997 1996
- -------------------------------------------------
Deferred tax liabilities:
Lease financing transactions .... $524 $429
Other ........................... 18 20
---- ----
Total deferred tax liabilities 542 449
---- ----
Deferred tax assets:
Operating expenses .............. 66 50
Allowance for loan losses ....... 36 31
Tax carryforwards ............... 5 13
Depreciation, net ............... 30 17
Other ........................... 14 12
---- ----
Valuation allowance ............. (5) (10)
---- ----
Total deferred tax assets .. 146 113
---- ----
Net deferred tax liabilities $396 $336
==== ====
- -------------------------------------------------
At December 31, 1997, State Street had non-U.S. tax loss carry-forwards of $10
million. If not used, $4 million of the non-U.S. tax losses will expire in the
years 1998 through 2002. Remaining tax losses carry forward indefinitely.
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:
- ------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------
U.S. Federal income tax rate ........ 35.0% 35.0% 35.0%
Changes from statutory rate:
State taxes, net of Federal benefit 4.4 4.9 3.2
Tax-exempt interest revenue,
net of disallowed interest ....... (3.9) (4.5) (4.3)
Tax credits ....................... (1.9) (1.4) (1.7)
Other, net ........................ (1.0) .5 .4
---- ---- ----
Effective tax rate .............. 32.6% 34.5% 32.6%
==== ==== ====
- ------------------------------------------------------------------
The reduction in the 1995 state effective tax rate was due to a change in the
Massachusetts bank tax law and the settlement of a multi-year tax refund claim
with the Commonwealth of Massachusetts.
NOTE Q - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share for the years ended December 31:
- ---------------------------------------------------------------------
(Dollars in millions,
except per share data) 1997 1996 1995
- ---------------------------------------------------------------------
Net Income ............... $ 380 $ 293 $ 247
======== ======== ========
Basic average shares ..... 160,662 161,783 165,107
Effect of dilutive securities:
Stock options and stock awards 2,068 1,482 1,436
7.75% convertible subordinated
debentures .............. 1,059 1,110 1,144
-------- -------- --------
Dilutive average shares .. 163,789 164,375 167,687
======== ======== ========
Basic earnings per share . $ 2.37 $ 1.81 $ 1.50
======== ======== ========
Diluted earnings per share $ 2.32 $ 1.78 $ 1.47
======== ======== ========
- ---------------------------------------------------------------------
NOTE R - CONTINGENT LIABILITIES
State Street provides banking, trust, investment management, global custody,
accounting, administration and securities processing services to both domestic
and global customers. Assets under custody and assets under management are held
by State Street in a fiduciary or custodial capacity and are not included in the
Consolidated Statement of Condition because 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, 1997,
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 S - OFF-BALANCE SHEET FINANCIAL INSTRUMENTS, INCLUDING DERIVATIVES
Off-balance sheet derivative instrument is a contract or agreement whose value
is derived from interest rates, currency exchange rates or other financial
indices. Derivative instruments include forwards, futures, swaps, options and
other instruments with similar characteristics. The use of these instruments
generates fee, interest or trading revenue.
Interest rate contracts involve an agreement with a counterparty
to exchange cash flows based on the movement of an underlying interest rate
index. An interest rate swap agreement involves the exchange of a series of
interest payments, either at a fixed or variable rate, based upon the notional
amount without the exchange of the underlying principal amount. An interest rate
option contract provides the purchaser, for a premium, the right but not the
obligation to buy or sell the underlying financial instrument at a set price at
or during a specified period. An interest rate futures contract is a commitment
to buy or sell at a future date a financial instrument at a contracted price and
may be settled in cash or through the delivery of the contracted instrument.
Foreign exchange contracts involve an agreement to exchange the currency of one
country for the currency of another country at an agreed upon rate and
settlement date. Foreign exchange contracts consist of swap agreements and
forward and spot contracts.
The following table summarizes the contractual or notional amounts of derivative
financial instruments held or issued by State Street for trading and balance
sheet management at December 31:
- -----------------------------------------------------------
(Dollars in millions) 1997 1996
- -----------------------------------------------------------
Trading:
Interest rate contracts:
Swap agreements ............. $ 1,015 $ 880
Options and caps purchased .. 38 25
Options and caps written .... 186 116
Futures - short position .... 594 1,252
Options on futures purchased 5 430
Options on futures written .. 8 28
Foreign exchange contracts:
Forward, swap and spot ...... 91,742 62,109
Options purchased ........... 144 206
Options written ............. 138 60
Options on futures purchased 330
Balance Sheet Management:
Interest rate contracts:
Swap agreements ............. 243 296
Options and caps purchased .. 50 50
Foreign exchange contracts ..... 44 65
- -----------------------------------------------------------
State Street's risk exposure from interest rate and foreign exchange contracts
results from the possibility that one party may default on its contractual
obligation or from movements in exchange or interest rates. Credit risk is
limited to the positive market value of the derivative financial instrument,
which is significantly less than the notional value. The notional value provides
the basis for determining the exchange of contractual cash flows. 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 at year end. The
estimated aggregate replacement cost of derivative financial instruments in a
net positive position was $1 billion and less than $1 billion at December 31,
1997 and 1996, respectively.
The foreign exchange contracts have been reduced by offsetting balances with the
same counterparty where a master netting agreement exists. The following table
represents the fair value and average fair value of financial instruments held
or issued for trading purposes as of and for the years ended December 31, 1997
and 1996:
- -------------------------------------------------------------------
Average
(Dollars in millions) Fair Value Fair Value
- -------------------------------------------------------------------
1997
Foreign exchange contracts:
Contracts in a receivable position ..... $1,037 $1,064
Contracts in a payable position ........ 1,036 1,087
Other financial instrument contracts:
Contracts in a receivable position ..... 3 7
Contracts in a payable position .......... 2 5
1996
Foreign exchange contracts:
Contracts in a receivable position ..... $ 620 $ 615
Contracts in a payable position ........ 634 617
Other financial instrument contracts:
Contracts in a receivable position ..... 6 6
Contracts in a payable position ........ 4 4
- -------------------------------------------------------------------
Net foreign exchange trading revenue related to foreign exchange contracts
totaled $245 million, $126 million and $141 million for 1997, 1996 and 1995,
respectively. Gains/losses for other financial instrument contracts were a gain
of $1 million in both 1997 and 1996, and a loss of $1 million in 1995. Future
cash requirements, if any, related to foreign currency contracts are represented
by the gross amount of currencies to be exchanged under each contract unless
State Street and the counterparty have agreed to pay or receive the net
contractual settlement amount on the settlement date. Future cash requirements
on other financial instruments are limited to the net amounts payable under the
agreements.
CREDIT-RELATED FINANCIAL INSTRUMENTS. Credit-related financial instruments
include indemnified securities on loan, commitments to extend credit, standby
letters of credit and letters of credit. The maximum credit risk associated with
credit-related financial instruments is measured by the contractual amounts of
these instruments.
The following is a summary of the contractual amount of State Street's
credit-related, off-balance sheet financial instruments at December 31:
- ---------------------------------------------------------------
(Dollars in millions) 1997 1996
- ---------------------------------------------------------------
Indemnified securities on loan $ 57,465 $ 41,518
Loan commitments ............ 7,294 4,974
Standby letters of credit ... 1,821 1,777
Letters of credit ........... 179 160
- ---------------------------------------------------------------
On behalf of its customers, State Street lends their securities
to creditworthy brokers and other institutions. In certain circumstances, State
Street may indemnify 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 $59 billion and $42.8 billion for indemnified securities on loan at
December 31, 1997 and 1996, respectively.
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 agreements by State Street to
lend monies at a future date, subject to 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. The amount and nature of collateral is obtained
based upon management's assessment of the credit risk. Approximately 70% of the
loan commitments expire within one year from the date of issue. Since many of
the commitments are expected to expire without being drawn, the total commitment
amounts do not necessarily represent future cash requirements.
NOTE T - FAIR VALUE OF FINANCIAL INSTRUMENTS
State Street uses the following methods to estimate the fair value of financial
instruments.
For financial instruments that have quoted market prices, those quotes are 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
are available, financial instruments are valued by discounting the expected cash
flow(s) using an estimated current market interest rate for the financial
instrument. For off-balance sheet derivative instruments, fair value is
estimated as the amount that State Street would receive or pay to terminate the
contracts at the reporting date, taking into account the current unrealized
gains or losses on open contracts.
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 balance sheet value. Such financial instruments are
reported in the following balance sheet captions: cash and due from banks,
Interest-bearing deposits with banks, securities purchased under resale
agreements and securities borrowed, Federal funds sold, deposits, securities
sold under repurchase agreements, Federal funds purchased, and other short-term
borrowings. Fair value of trading accounts equals the balance sheet value. As of
December 31, 1997, the fair value of interest rate contracts used for balance
sheet management was a payable of $4 million; as of December 31, 1996, the fair
value of such interest rate contracts was a payable of $6 million. There is no
reported cost for loan commitments.
The reported value and fair value for other balance sheet captions at December
31, are as follows:
- -------------------------------------------------------
Reported Fair
(Dollars in millions) Value Value
- -------------------------------------------------------
1997 Investment securities:
Available for sale ......... $ 9,482 $ 9,482
Held to maturity ........... 893 893
Net loans (excluding leases) .. 4,597 4,597
Notes payable ................. 44 45
Long-term debt ................ 774 892
1996
Investment securities:
Available for sale ......... $ 8,528 $ 8,528
Held to maturity ........... 859 859
Net loans (excluding leases) .. 3,994 3,994
Notes payable ................. 86 88
Long-term debt ................ 476 463
- -------------------------------------------------------
NOTE U - NON-U.S. ACTIVITIES
Non-U.S. 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 State Street's business, it is not possible to segregate
precisely domestic and non-U.S. activities. The determination of earnings
attributable to non-U.S. activities requires internal allocations for resources
common to non-U.S. and domestic activities. Subjective judgments have been used
to arrive at these operating results for non-U.S. 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 table summarizes non-U.S. operating results and assets, based on
the domicile location of customers, for the years ended and as of December 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
(Dollars in millions) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fee revenue ........................................................... $ 327 $ 252 $ 226
Interest revenue ...................................................... 654 489 451
Interest expense ...................................................... 446 359 343
------- ------ ------
Net interest revenue .............................................. 208 130 108
Provision for loan losses ............................................. 10 1 4
------- ------ ------
Total revenue ..................................................... 525 381 330
Operating expenses .................................................... 373 296 263
------- ------ ------
Net income before taxes ........................................... 152 85 67
Income taxes .......................................................... 55 30 24
------- ------ ------
Net Income ........................................................ $ 97 $ 55 $ 43
======= ====== ======
Assets:
Interest-bearing deposits with banks ................................. $10,080 $7,565 $5,975
Loans and other assets ............................................... 2,713 1,486 1,447
------- ------ ------
Total Assets ..................................................... $12,793 $9,051 $7,422
======= ====== ======
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTE V - FINANCIAL STATEMENTS OF STATE STREET CORPORATION (PARENT ONLY)
<TABLE>
STATEMENT OF INCOME
<CAPTION>
- ------------------------------------------------------------------------------------------------------
(Dollars in millions) Year ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from bank subsidiary ......................................... $ 22 $ 88 $ 96
Dividends and interest revenue ......................................... 25 10 12
Securities gains, net .................................................. 3 5
----- ----- -----
Total revenue ..................................................... 47 101 113
Interest on commercial paper .......................................... 2 3 8
Interest on long-term debt ............................................ 53 13 6
Other expenses ........................................................ 4 3 4
----- ----- -----
Total expenses ..................................................... 59 19 18
Income tax benefit ..................................................... (13) (1)
----- ----- -----
Income before equity in undistributed income of subsidiaries ...... 1 83 95
Equity in undistributed income of subsidiaries and affiliate:
Consolidated bank ................................................... 369 192 132
Consolidated nonbank ................................................ 4 12 15
Unconsolidated affiliate ............................................ 6 6 5
----- ----- -----
379 210 152
----- ----- -----
Net Income ......................................................... $ 380 $ 293 $ 247
===== ===== =====
- ------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CONDITION
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
(Dollars in millions) December 31, 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and due from bank subsidiary ........................................... $ 15 $ 2
Interest-bearing deposits with bank subsidiary .............................. 2 316
Securities purchased under resale agreements ................................ 320
Available-for-sale securities ............................................... 15 10
Investment in consolidated subsidiaries:
Bank ...................................................................... 2,233 1,778
Nonbank ................................................................... 100 76
Investment in unconsolidated affiliate ...................................... 32 26
Notes receivable from nonbank subsidiaries .................................. 72 57
Other assets ................................................................ 12 11
------- -------
Total Assets ............................................................ $ 2,801 $ 2,276
======= =======
Liabilities:
Commercial paper ............................................................ $ $ 8
Accrued taxes and other expenses ............................................ 22 18
Other liabilities ........................................................... 16 16
Long-term debt .............................................................. 768 459
------- -------
Total Liabilities ....................................................... 806 501
------- -------
Stockholders' Equity ........................................................ 1,995 1,775
------- -------
Total Liabilities and Stockholders' Equity .............................. $ 2,801 $ 2,276
======= =======
</TABLE>
<PAGE>
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
(Dollars in millions) Year ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net income ...................................................... $ 380 $ 293 $ 247
Equity in undistributed income of subsidiaries and affiliate .... (379) (210) (152)
Securities gains, net ........................................... (3) (5)
Other, net ...................................................... (4) 6 17
----- ----- -----
Net Cash (Used) Provided by Operating Activities ............ (3) 86 107
Investing Activities:
Net (payments for) proceeds from:
Investment in bank subsidiary ................................ (75) (14)
Investment in nonbank subsidiaries ........................... (21) (8) (2)
Securities purchased under resale agreement .................. (320)
Purchase of available-for-sale securities .................... (5) (10) (13)
Maturity of available-for-sale securities .................... 10 5
Sales of available-for-sale securities ....................... 18 25
Interest bearing deposits with banks ......................... 314 (150) 17
Notes receivable from nonbank subsidiaries ................... (15) (41) (10)
----- ----- -----
Net Cash (Used) Provided by Investing Activities ............ (122) (195) 22
Financing Activities:
Net payments for commercial paper ............................... (8) (66) (61)
Proceeds from issuance of long-term debt ........................ 309 356
Proceeds from issuance of common and treasury stock ............. 16 12 5
Payments for cash dividends ..................................... (69) (61) (56)
Payments for purchase of common stock ........................... (110) (131) (17)
----- ----- -----
Net Cash Provided (Used) by Financing Activities ............ 138 110 (129)
----- ----- -----
Net Increase ................................................ 13 1
----- ----- -----
Cash and due from banks at beginning of period .................. 2 1 1
----- ----- -----
Cash and Due from Banks at End of Period .................... $ 15 $ 2 $ 1
===== ===== =====
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
State Street Corporation REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors
State Street Corporation
We have audited the accompanying consolidated statements of condition of State
Street Corporation as of December 31, 1997 and 1996, 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, 1997. 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 herein present fairly, in
all material respects, the consolidated financial position of State Street
Corporation at December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
January 13, 1998
<PAGE>
<TABLE>
SUPPLEMENTAL FINANCIAL DATA State Street Corporation
- -----------------------------------------------------------------------------------------------------------
CONDENSED AVERAGE STATEMENT OF CONDITION WITH NET INTEREST REVENUE ANALYSIS
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Average Average
(Dollars in millions; taxable equivalent) Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Interest-bearing deposits with banks .............................. $ 8,516 $ 415 4.88%
Securities purchased under resale agreements and securities borrowed 6,413 354 5.52
Federal funds sold ................................................ 708 39 5.57
Trading account assets ............................................ 153 9 5.60
Investment securities:
U.S. Treasury and Federal agencies ............................. 5,980 360 6.03
State and political subdivisions ............................... 1,645 105 6.37
Other investments .............................................. 2,659 163 6.12
------- ------
Total investment securities .................................. 10,284 628 6.11
Loans:
Commercial and financial ....................................... 3,494 215 6.15
Real estate .................................................... 99 9 8.72
Non-U.S. ....................................................... 882 61 6.98
Lease financing ................................................ 876 69 7.86
------- ------
Total loans .................................................. 5,351 354 6.61
------- ------
TOTAL INTEREST-EARNING ASSETS ................................ 31,425 1,799 5.73
Cash and due from banks ........................................... 1,119
Allowance for loan losses ......................................... (76)
Premises and equipment ............................................ 475
Customers' acceptance liability ................................... 68
Other assets ...................................................... 2,415
-------
TOTAL ASSETS ................................................. $35,426
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings ........................................................ $ 2,081 87 4.17
Time ........................................................... 153 8 5.08
Non-U.S. ....................................................... 12,645 417 3.30
------- ------
Total interest-bearing deposits .............................. 14,879 512 3.44
Securities sold under repurchase agreements ....................... 9,598 499 5.20
Federal funds purchased ........................................... 291 15 5.26
Other short-term borrowings ....................................... 602 30 5.03
Notes payable ..................................................... 76 3 4.34
Long-term debt .................................................... 717 55 7.70
------- ------
TOTAL INTEREST-BEARING LIABILITIES ........................... 26,163 1,114 4.26
------
Noninterest-bearing deposits ...................................... 5,288
Acceptances outstanding ........................................... 68
Other liabilities ................................................. 2,060
Stockholders' equity .............................................. 1,847
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................... $35,426
=======
Net interest revenue ......................................... $ 685
======
Excess of rate earned over rate paid ......................... 1.47%
====
NET INTEREST MARGIN(1) ....................................... 2.18%
====
- -----------------------------------------------------------------------------------------------------------
(1) Net interest margin is taxable equivalent net interest revenue divided by average interest-earning assets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
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>
$ 7,041 $ 336 4.78% $ 5,466 $ 287 5.25% $ 5,183 $ 209 4.04% $ 5,022 $ 202 4.01%
6,010 326 5.43 5,569 329 5.91 3,102 132 4.26 3,255 102 3.14
561 30 5.35 475 28 5.97 537 24 4.45 534 16 3.03
326 18 5.41 412 21 5.13 532 26 4.90 416 17 4.02
4,319 261 6.03 4,139 243 5.89 3,455 184 5.33 2,181 124 5.72
1,478 92 6.25 1,183 71 5.96 1,120 57 5.09 732 40 5.43
2,111 127 6.01 2,212 134 6.05 2,597 139 5.35 2,169 118 5.43
- ------- ------ ------- ----- ------- ----- ------- -----
7,908 480 6.06 7,534 448 5.95 7,172 380 5.30 5,082 282 5.55
2,938 185 6.30 2,519 171 6.79 2,347 123 5.24 1,918 93 4.85
106 9 8.76 99 8 8.39 96 7 7.57 97 7 6.97
815 52 6.40 536 42 7.80 586 38 6.41 282 16 5.82
654 44 6.73 510 37 7.31 372 22 5.98 279 16 5.61
- ------- ------ ------- ----- ------- ----- ------- -----
4,513 290 6.42 3,664 258 7.04 3,401 190 5.58 2,576 132 5.14
- ------- ------ ------- ----- ------- ----- ------- -----
26,359 1,480 5.61 23,120 1,371 5.93 19,927 961 4.82 16,885 751 4.45
1,164 1,026 1,286 979
(70) (62) (58) (58)
458 481 462 435
42 63 30 33
1,530 1,554 1,148 653
- -------- ------- ------- -------
$ 29,483 $26,182 $22,795 $18,927
======== ======= ======= =======
$ 2,097 86 4.10 $1,913 85 4.45 $ 1,992 57 2.85 $ 2,253 55 2.45
150 8 5.26 131 7 5.47 172 8 4.52 234 12 5.24
10,372 331 3.19 8,470 324 3.82 7,392 216 2.93 4,954 147 2.95
- ------- ------ ------- ----- ------- ----- ------- -----
12,619 425 3.37 10,514 416 3.96 9,556 281 2.93 7,441 214 2.87
7,819 394 5.05 7,080 399 5.65 4,958 201 4.07 4,181 121 2.90
357 19 5.18 504 30 5.89 411 16 3.90 741 21 2.84
707 36 5.04 761 41 5.32 563 25 4.40 216 8 3.78
124 3 2.47 214 12 5.73 258 12 4.64 511 20 3.90
213 15 6.95 127 9 6.71 128 9 6.73 122 10 8.19
- ------- ------ ------- ----- ------- ----- ------- -----
21,839 892 4.08 19,200 907 4.72 15,874 544 3.43 13,212 394 2.98
------ ----- ----- -----
4,638 4,113 4,701 4,059
42 64 30 34
1,346 1,322 906 497
1,618 1,483 1,284 1,125
- -------- ------- ------- -------
$ 29,483 $26,182 $22,795 $18,927
======== ======= ======= =======
$ 588 $ 464 $ 417 $ 357
====== ====== ===== =====
1.53% 1.21% 1.39% 1.47%
==== ==== ==== ====
2.23% 2.01% 2.09% 2.12%
==== ==== ==== ====
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF STATE STREET 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
Corporation have been omitted in accordance with the SEC rules because, when
considered in the aggregate, they did not constitute a "significant subsidiary"
of State Street Corporation.
- --------------------------------------------------------------------------------
State or
Jurisdiction
Name of Organization
- --------------------------------------------------------------------------------
State Street Bank and Trust Company ........................... Massachusetts
State Street Bank and Trust Company of Connecticut, N.A.... Connecticut
State Street Capital Corporation .......................... Massachusetts
State Street Boston Leasing Company, Inc................... Massachusetts
SPLS Inc............................................... Massachusetts
State Street California Inc. .............................. California
State Street Massachusetts Securities Corporation ......... Massachusetts
State Street Bank International ........................... New York
State Street Video Services Inc. .......................... Massachusetts
High Street Investments, Inc. ......................... Massachusetts
Investors Fiduciary Trust Company.......................... Missouri
Princeton Financial Systems, Inc. ......................... Delaware
State Street International Holdings........................ Massachusetts
State Street Australia Limited ........................ New South Wales
State Street Bank GmbH ................................ Germany
State Street Bank Luxembourg, S.A. .................... Luxembourg
State Street Banque, S.A. ............................. France
State Street Trust Company, Canada..................... Canada
State Street Trust and Banking Company Limited......... Japan
SSB Investments, Inc. ......................................... Massachusetts
SSB Realty, Inc. .............................................. Massachusetts
State Street Florida, Inc. .................................... Florida
State Street Global Advisors, Inc. ............................ Delaware
State Street Global Advisors, United Kingdom, Limited ..... United Kingdom
State Street Institutional Capital A .......................... Delaware
State Street Institutional Capital B .......................... Delaware
Boston Financial Data Services (50% owned) .................... Massachusetts
- --------------------------------------------------------------------------------
All of the above wholly-owned subsidiaries are included in the consolidated
financial statements for State Street.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of State Street Corporation of our report dated January 13, 1998, included in
the 1997 Annual Report to Shareholders of State Street Corporation.
We consent to the incorporation by reference in Registration Statements (Forms
S-8 Nos. 333-16979, 333-36409, 33-57359, 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
benefit share plans, in Registration Statements (Form S-3 Nos. 333-2143,
33-49885) pertaining to the registration of debt securities and preferred stock
of State Street Corporation, and in Registration Statement (Form S-3 No.
333-16987) pertaining to the registration of Common Stock of State Street
Corporation, of our report dated January 13, 1998 with respect to the
consolidated financial statements of State Street Corporation incorporated by
reference in this Annual Report (Form 10-K) for the year ended December 31,
1997.
Ernst & Young, LLP
Boston, Massachusetts
March 25, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and income statement and from the management discussion and analysis and
is qualified in its entirety by reference to such financial statements and
management discussion.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,410,886
<INT-BEARING-DEPOSITS> 10,080,000
<FED-FUNDS-SOLD> 6,165,454
<TRADING-ASSETS> 204,511
<INVESTMENTS-HELD-FOR-SALE> 9,481,556
<INVESTMENTS-CARRYING> 893,105
<INVESTMENTS-MARKET> 893,467
<LOANS> 5,561,468
<ALLOWANCE> 82,820
<TOTAL-ASSETS> 37,974,897
<DEPOSITS> 24,877,723
<SHORT-TERM> 8,251,486
<LIABILITIES-OTHER> 2,076,777
<LONG-TERM> 774,145
0
0
<COMMON> 167,576
<OTHER-SE> 1,827,190
<TOTAL-LIABILITIES-AND-EQUITY> 37,974,897
<INTEREST-LOAN> 340,902
<INTEREST-INVEST> 597,821
<INTEREST-OTHER> 816,808
<INTEREST-TOTAL> 1,755,531
<INTEREST-DEPOSIT> 511,654
<INTEREST-EXPENSE> 1,114,482
<INTEREST-INCOME-NET> 641,049
<LOAN-LOSSES> 16,000
<SECURITIES-GAINS> 2,264
<EXPENSE-OTHER> 1,733,490
<INCOME-PRETAX> 564,012
<INCOME-PRE-EXTRAORDINARY> 564,012
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 380,254
<EPS-PRIMARY> 2.37
<EPS-DILUTED> 2.32
<YIELD-ACTUAL> 5.73
<LOANS-NON> 2,029
<LOANS-PAST> 543
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 72,614
<CHARGE-OFFS> 8,321
<RECOVERIES> (2,527)
<ALLOWANCE-CLOSE> 82,820
<ALLOWANCE-DOMESTIC> 68,152
<ALLOWANCE-FOREIGN> 14,668
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BALANCE SHEET AND INCOME STATEMENT AND FROM THE MANAGEMENT DISCUSSION
AND ANALYSIS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AND MANAGEMENT DISCUSSION.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,622,542
<INT-BEARING-DEPOSITS> 7,565,419
<FED-FUNDS-SOLD> 5,768,110
<TRADING-ASSETS> 254,527
<INVESTMENTS-HELD-FOR-SALE> 8,528,145
<INVESTMENTS-CARRYING> 858,758
<INVESTMENTS-MARKET> 859,196
<LOANS> 4,712,955
<ALLOWANCE> 72,614
<TOTAL-ASSETS> 31,523,866
<DEPOSITS> 19,519,315
<SHORT-TERM> 8,240,186
<LIABILITIES-OTHER> 1,514,007
<LONG-TERM> 275,635
0
0
<COMMON> 83,615
<OTHER-SE> 1,691,108
<TOTAL-LIABILITIES-AND-EQUITY> 31,523,866
<INTEREST-LOAN> 278,264
<INTEREST-INVEST> 454,462
<INTEREST-OTHER> 709,976
<INTEREST-TOTAL> 1,442,702
<INTEREST-DEPOSIT> 424,746
<INTEREST-EXPENSE> 891,754
<INTEREST-INCOME-NET> 550,948
<LOAN-LOSSES> 8,000
<SECURITIES-GAINS> 5,151
<EXPENSE-OTHER> 1,397,502
<INCOME-PRETAX> 447,153
<INCOME-PRE-EXTRAORDINARY> 447,153
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 292,835
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.78
<YIELD-ACTUAL> 5.61
<LOANS-NON> 12,010
<LOANS-PAST> 18
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 63,491
<CHARGE-OFFS> 5,760
<RECOVERIES> 6,883
<ALLOWANCE-CLOSE> 72,614
<ALLOWANCE-DOMESTIC> 62,844
<ALLOWANCE-FOREIGN> 9,770
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BALANCE SHEET AND INCOME STATEMENT AND FROM THE MANAGEMENT DISCUSSION
AND ANALYSIS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AND MANAGEMENT DISCUSSION.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,421,941
<INT-BEARING-DEPOSITS> 5,975,178
<FED-FUNDS-SOLD> 5,754,119
<TRADING-ASSETS> 503,839
<INVESTMENTS-HELD-FOR-SALE> 5,535,364
<INVESTMENTS-CARRYING> 824,399
<INVESTMENTS-MARKET> 829,133
<LOANS> 3,986,142
<ALLOWANCE> 63,491
<TOTAL-ASSETS> 25,785,187
<DEPOSITS> 16,647,219
<SHORT-TERM> 6,206,676
<LIABILITIES-OTHER> 1,217,192
<LONG-TERM> 126,576
0
0
<COMMON> 82,695
<OTHER-SE> 1,504,829
<TOTAL-LIABILITIES-AND-EQUITY> 25,785,187
<INTEREST-LOAN> 242,015
<INTEREST-INVEST> 429,947
<INTEREST-OTHER> 664,657
<INTEREST-TOTAL> 1,336,619
<INTEREST-DEPOSIT> 416,047
<INTEREST-EXPENSE> 907,185
<INTEREST-INCOME-NET> 429,434
<LOAN-LOSSES> 8,000
<SECURITIES-GAINS> 12,330
<EXPENSE-OTHER> 1,174,016
<INCOME-PRETAX> 336,490
<INCOME-PRE-EXTRAORDINARY> 366,490
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 247,109
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 1.47
<YIELD-ACTUAL> 5.93
<LOANS-NON> 15,502
<LOANS-PAST> 250
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 58,184
<CHARGE-OFFS> 6,726
<RECOVERIES> 4,033
<ALLOWANCE-CLOSE> 63,491
<ALLOWANCE-DOMESTIC> 53,802
<ALLOWANCE-FOREIGN> 9,689
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT AND FROM THE MANAGEMENT DISCUSSION AND ANALYSIS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
MANAGEMENT DISCUSSION.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 1,510
<INT-BEARING-DEPOSITS> 8,826
<FED-FUNDS-SOLD> 6,023
<TRADING-ASSETS> 106
<INVESTMENTS-HELD-FOR-SALE> 9,581
<INVESTMENTS-CARRYING> 881
<INVESTMENTS-MARKET> 882
<LOANS> 5,356
<ALLOWANCE> 79
<TOTAL-ASSETS> 35,507
<DEPOSITS> 22,111
<SHORT-TERM> 8,699
<LIABILITIES-OTHER> 2,006
<LONG-TERM> 775
0
0
<COMMON> 168
<OTHER-SE> 1,748
<TOTAL-LIABILITIES-AND-EQUITY> 35,507
<INTEREST-LOAN> 248
<INTEREST-INVEST> 446
<INTEREST-OTHER> 581
<INTEREST-TOTAL> 1,275
<INTEREST-DEPOSIT> 363
<INTEREST-EXPENSE> 807
<INTEREST-INCOME-NET> 468
<LOAN-LOSSES> 11
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 1,260
<INCOME-PRETAX> 417
<INCOME-PRE-EXTRAORDINARY> 417
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 280
<EPS-PRIMARY> 1.74
<EPS-DILUTED> 1.71
<YIELD-ACTUAL> 5.74
<LOANS-NON> 3
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 73
<CHARGE-OFFS> 7
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 79
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT AND FROM THE MANAGEMENT DISCUSSION AND ANALYSIS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
MANAGEMENT DISCUSSION.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 1,989
<INT-BEARING-DEPOSITS> 8,776
<FED-FUNDS-SOLD> 6,602
<TRADING-ASSETS> 126
<INVESTMENTS-HELD-FOR-SALE> 9,717
<INVESTMENTS-CARRYING> 877
<INVESTMENTS-MARKET> 877
<LOANS> 5,527
<ALLOWANCE> 74
<TOTAL-ASSETS> 36,686
<DEPOSITS> 24,858
<SHORT-TERM> 7,378
<LIABILITIES-OTHER> 1,843
<LONG-TERM> 775
0
167
<COMMON> 0
<OTHER-SE> 1,665
<TOTAL-LIABILITIES-AND-EQUITY> 36,686
<INTEREST-LOAN> 158
<INTEREST-INVEST> 293
<INTEREST-OTHER> 372
<INTEREST-TOTAL> 823
<INTEREST-DEPOSIT> 228
<INTEREST-EXPENSE> 519
<INTEREST-INCOME-NET> 304
<LOAN-LOSSES> 6
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 810
<INCOME-PRETAX> 266
<INCOME-PRE-EXTRAORDINARY> 266
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 178
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.09
<YIELD-ACTUAL> 5.79
<LOANS-NON> 10
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 73
<CHARGE-OFFS> 6
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 74
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT AND FROM THE MANAGEMENT DISCUSSION AND ANALYSIS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
MANAGEMENT DISCUSSION.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,712,241
<INT-BEARING-DEPOSITS> 8,198,439
<FED-FUNDS-SOLD> 5,953,144
<TRADING-ASSETS> 143,981
<INVESTMENTS-HELD-FOR-SALE> 9,364,083
<INVESTMENTS-CARRYING> 871,734
<INVESTMENTS-MARKET> 868,314
<LOANS> 4,841,614
<ALLOWANCE> 70,307
<TOTAL-ASSETS> 33,631,012
<DEPOSITS> 20,444,469
<SHORT-TERM> 9,010,866
<LIABILITIES-OTHER> 1,662,575
<LONG-TERM> 775,373
<COMMON> 83,614
0
0
<OTHER-SE> 1,654,115
<TOTAL-LIABILITIES-AND-EQUITY> 33,631,012
<INTEREST-LOAN> 76,046
<INTEREST-INVEST> 139,690
<INTEREST-OTHER> 182,302
<INTEREST-TOTAL> 398,038
<INTEREST-DEPOSIT> 108,748
<INTEREST-EXPENSE> 248,036
<INTEREST-INCOME-NET> 150,002
<LOAN-LOSSES> 3,000
<SECURITIES-GAINS> (51)
<EXPENSE-OTHER> 391,333
<INCOME-PRETAX> 130,177
<INCOME-PRE-EXTRAORDINARY> 130,177
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,438
<EPS-PRIMARY> .54
<EPS-DILUTED> .53
<YIELD-ACTUAL> 5.67
<LOANS-NON> 5,860
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 72,614
<CHARGE-OFFS> 5,536
<RECOVERIES> 229
<ALLOWANCE-CLOSE> 70,307
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT AND FROM THE MANAGEMENT DISCUSSION AND ANALYSIS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
MANAGEMENT DISCUSSION.
</LEGEND>
<MULTIPLIER> 1,000
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,436,809
<INT-BEARING-DEPOSITS> 6,206,406
<FED-FUNDS-SOLD> 5,807,125
<TRADING-ASSETS> 200,111
<INVESTMENTS-HELD-FOR-SALE> 7,842,463
<INVESTMENTS-CARRYING> 851,871
<INVESTMENTS-MARKET> 850,226
<LOANS> 4,251,752
<ALLOWANCE> 71,421
<TOTAL-ASSETS> 28,444,918
<DEPOSITS> 17,376,220
<SHORT-TERM> 7,903,874
<LIABILITIES-OTHER> 1,266,527
<LONG-TERM> 275,869
<COMMON> 82,693
0
0
<OTHER-SE> 1,539,735
<TOTAL-LIABILITIES-AND-EQUITY> 28,444,918
<INTEREST-LOAN> 203,695
<INTEREST-INVEST> 327,028
<INTEREST-OTHER> 526,197
<INTEREST-TOTAL> 1,056,920
<INTEREST-DEPOSIT> 319,957
<INTEREST-EXPENSE> 652,758
<INTEREST-INCOME-NET> 404,162
<LOAN-LOSSES> 6,001
<SECURITIES-GAINS> 4,560
<EXPENSE-OTHER> 1,022,732
<INCOME-PRETAX> 114,472
<INCOME-PRE-EXTRAORDINARY> 114,472
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 214,873
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.31
<YIELD-ACTUAL> 5.68
<LOANS-NON> 8,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 63,491
<CHARGE-OFFS> 4,136
<RECOVERIES> 6,065
<ALLOWANCE-CLOSE> 71,421
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT AND FROM THE MANAGEMENT DISCUSSION AND ANALYSIS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
MANAGEMENT DISCUSSION.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,837,029
<INT-BEARING-DEPOSITS> 7,758,948
<FED-FUNDS-SOLD> 4,245,014
<TRADING-ASSETS> 256,325
<INVESTMENTS-HELD-FOR-SALE> 7,591,957
<INVESTMENTS-CARRYING> 839,765
<INVESTMENTS-MARKET> 837,101
<LOANS> 4,268,471
<ALLOWANCE> 70,088
<TOTAL-ASSETS> 28,943,675
<DEPOSITS> 19,346,804
<SHORT-TERM> 6,307,265
<LIABILITIES-OTHER> 1,437,366
<LONG-TERM> 276,101
<COMMON> 82,693
0
0
<OTHER-SE> 1,493,446
<TOTAL-LIABILITIES-AND-EQUITY> 28,943,675
<INTEREST-LOAN> 132,943
<INTEREST-INVEST> 202,143
<INTEREST-OTHER> 353,286
<INTEREST-TOTAL> 688,372
<INTEREST-DEPOSIT> 214,554
<INTEREST-EXPENSE> 422,889
<INTEREST-INCOME-NET> 265,483
<LOAN-LOSSES> 4,001
<SECURITIES-GAINS> 3,784
<EXPENSE-OTHER> 672,708
<INCOME-PRETAX> 218,432
<INCOME-PRE-EXTRAORDINARY> 218,432
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 141,258
<EPS-PRIMARY> .87
<EPS-DILUTED> .86
<YIELD-ACTUAL> 5.45
<LOANS-NON> 10,400
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 63,491
<CHARGE-OFFS> 2,759
<RECOVERIES> 5,355
<ALLOWANCE-CLOSE> 70,088
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT AND FROM THE MANAGEMENT DISCUSSION AND ANALYSIS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
MANAGEMENT DISCUSSION.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-30-1996
<CASH> 1,523,903
<INT-BEARING-DEPOSITS> 8,041,697
<FED-FUNDS-SOLD> 4,181,285
<TRADING-ASSETS> 404,923
<INVESTMENTS-HELD-FOR-SALE> 6,166,148
<INVESTMENTS-CARRYING> 837,378
<INVESTMENTS-MARKET> 837,326
<LOANS> 4,204,237
<ALLOWANCE> 65,716
<TOTAL-ASSETS> 27,229,174
<DEPOSITS> 17,737,693
<SHORT-TERM> 6,340,697
<LIABILITIES-OTHER> 1,464,357
<LONG-TERM> 126,346
<COMMON> 82,694
0
0
<OTHER-SE> 1,477,387
<TOTAL-LIABILITIES-AND-EQUITY> 27,229,174
<INTEREST-LOAN> 65,089
<INTEREST-INVEST> 90,013
<INTEREST-OTHER> 190,916
<INTEREST-TOTAL> 346,018
<INTEREST-DEPOSIT> 110,571
<INTEREST-EXPENSE> 214,829
<INTEREST-INCOME-NET> 131,189
<LOAN-LOSSES> 2,000
<SECURITIES-GAINS> 692
<EXPENSE-OTHER> 327,868
<INCOME-PRETAX> 107,988
<INCOME-PRE-EXTRAORDINARY> 107,988
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,750
<EPS-PRIMARY> .43
<EPS-DILUTED> .42
<YIELD-ACTUAL> 5.67
<LOANS-NON> 14,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 63,491
<CHARGE-OFFS> 308
<RECOVERIES> 533
<ALLOWANCE-CLOSE> 65,716
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
