SECURITIES AND EXCHANGE COMMISSION
THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-5108
Massachusetts (State or other jurisdiction of incorporation) One Lincoln Street Boston, Massachusetts (Address of principal executive office) | 04-2456637 (I.R.S. Employer Identification No.) 02111 (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
(Title of Each Class) | (Name of each exchange on which registered) | |||||
---|---|---|---|---|---|---|
Common Stock, $1 par value Preferred share purchase rights | Boston Stock Exchange New York Stock Exchange Archipelago Stock Exchange |
None
Large accelerated filer |X| | Accelerated Filer |_| | Non- Accelerated filer |_| | |||
(1) | The registrant’s definitive Proxy Statement for the 2006 Annual Meeting to be filed pursuant to Regulation 14A on or before April 30, 2006 (Part III). |
Table of Contents
Description | Page Number | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
PART I | ||||||||||
Item 1 | Business | 1 | ||||||||
Item 1A | Risk Factors | 5 | ||||||||
Item 1B | Unresolved Staff Comments | 10 | ||||||||
Item 2 | Properties | 10 | ||||||||
Item 3 | Legal Proceedings | 10 | ||||||||
Item 4 | Submission of Matters to a Vote of Security Holders | 10 | ||||||||
Item 4A | Executive Officers of the Registrant | 11 | ||||||||
PART II | ||||||||||
Item 5 | Market for Registrant’s Common Equity and Related Stockholder Matters | 12 | ||||||||
Item 6 | Selected Financial Data | 14 | ||||||||
Item 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 | ||||||||
Item 7A | Quantitative and Qualitative Disclosures About Market Risk | 58 | ||||||||
Item 8 | Financial Statements and Supplementary Data | 59 | ||||||||
Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 107 | ||||||||
Item 9A | Controls and Procedures | 107 | ||||||||
Item 9B | Other Information | 110 | ||||||||
PART III | ||||||||||
Item 10 | Directors and Executive Officers of the Registrant | 110 | ||||||||
Item 11 | Executive Compensation | 110 | ||||||||
Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 110 | ||||||||
Item 13 | Certain Relationships and Related Transactions | 111 | ||||||||
Item 14 | Principal Accountant Fees and Services | 111 | ||||||||
PART IV | ||||||||||
Item 15 | Exhibits and Financial Statement Schedules | 112 | ||||||||
Signatures | 118 | |||||||||
Exhibits |
and trusteeship of collective trust funds and separate accounts offered to employee benefit plans subject to ERISA is subject to regulation by the U.S. Department of Labor.
investments in mutual funds, other collective investment funds, and defined contribution plans, our revenue may be adversely affected.
transactions, which could have an adverse impact on our results of operations. Additionally, the Financial Accounting Standards Board has been considering making changes to the accounting guidance related to uncertain tax positions and leveraged leases. While such changes may not have an economic impact on our business, these changes could affect the attainment of our current financial goals.
special purpose entities we administer could experience deterioration in asset performance. This could result in higher levels of credit-related losses, which could adversely affect our earnings.
Name | Age | Position | Year Elected(1) | |||
---|---|---|---|---|---|---|
Ronald E. Logue | 60 | Chairman and Chief Executive Officer | 2004 | |||
Joseph C. Antonellis | 51 | Executive Vice President and Chief Information Officer | 1999/2002 | |||
Jeffrey N. Carp | 49 | Executive Vice President and Chief Legal Officer | 2006 | |||
Joseph W. Chow | 53 | Executive Vice President | 1996 | |||
Charles C. Cutrell, III | 51 | Executive Vice President, General Counsel and Secretary | 2004 | |||
Pamela D. Gormley | 57 | Executive Vice President and Corporate Controller | 2004 | |||
Joseph L. Hooley | 48 | Executive Vice President | 2000 | |||
William W. Hunt | 43 | Executive Vice President; President and Chief Executive Officer, State Street Global Advisors | 2001/2005 | |||
Edward J. O’Brien | 51 | Executive Vice President and Treasurer | 2001/2005 | |||
David C. O’Leary | 59 | Executive Vice President | 2005 | |||
James S. Phalen | 55 | Executive Vice President | 1992 | |||
Edward J. Resch | 53 | Executive Vice President and Chief Financial Officer | 2002 | |||
Stanley W. Shelton | 51 | Executive Vice President | 1995 |
(1) | For officers where two years are listed, the first year indicates the year they were elected as executive vice president, and the second year indicates the year they received the additional title as it appears in the table. |
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS |
Number of Shares Purchased | Average Price Per Share | Number of Shares Purchased Under Publicly Announced Program | Maximum Number of Shares Yet to Be Purchased Under Publicly Announced Program | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(Shares in thousands) | |||||||||||
October 1 – October 31, 2005 | 938 | $54.29 | 927 | 8,797 | |||||||
November 1 – November 30, 2005 | 2,089 | 57.03 | 2,089 | 6,708 | |||||||
December 1 – December 31, 2005 | 1,905 | 58.52 | 1,905 | 4,803 | |||||||
Total | 4,932 | 4,921 | |||||||||
2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions, except per share data or where otherwise indicated) | |||||||||||||||||||||
FOR THE YEAR ENDED DECEMBER 31: | |||||||||||||||||||||
Total fee revenue | $ | 4,551 | $ | 4,048 | $ | 3,556 | $ | 2,850 | $ | 2,769 | |||||||||||
Net interest revenue | 907 | 859 | 810 | 979 | 1,025 | ||||||||||||||||
Provision for loan losses | – | (18 | ) | – | 4 | 10 | |||||||||||||||
(Losses) gains on sales of available-for-sale investment securities, net | (1 | ) | 26 | 23 | 76 | 43 | |||||||||||||||
Gain on sale of Private Asset Management business, net of exit and other associated costs | 16 | – | 285 | – | – | ||||||||||||||||
Gain on sale of Corporate Trust business, net of exit and other associated costs | – | – | 60 | 495 | – | ||||||||||||||||
Total revenue | 5,473 | 4,951 | 4,734 | 4,396 | 3,827 | ||||||||||||||||
Total operating expenses | 4,041 | 3,759 | 3,622 | 2,841 | 2,897 | ||||||||||||||||
Income from continuing operations before income tax expense | 1,432 | 1,192 | 1,112 | 1,555 | 930 | ||||||||||||||||
Income tax expense from continuing operations | 487 | 394 | 390 | 540 | 302 | ||||||||||||||||
Income from continuing operations | 945 | 798 | 722 | 1,015 | 628 | ||||||||||||||||
Net loss from discontinued operations | (107 | ) | – | – | – | – | |||||||||||||||
Net income | $ | 838 | $ | 798 | $ | 722 | $ | 1,015 | $ | 628 | |||||||||||
PER COMMON SHARE: | |||||||||||||||||||||
Basic earnings: | |||||||||||||||||||||
Continuing operations | $ | 2.86 | $ | 2.38 | $ | 2.18 | $ | 3.14 | $ | 1.94 | |||||||||||
Net income | 2.53 | 2.38 | 2.18 | 3.14 | 1.94 | ||||||||||||||||
Diluted earnings: | |||||||||||||||||||||
Continuing operations | 2.82 | 2.35 | 2.15 | 3.10 | 1.90 | ||||||||||||||||
Net income | 2.50 | 2.35 | 2.15 | 3.10 | 1.90 | ||||||||||||||||
Cash dividends declared | .72 | .64 | .56 | .48 | .41 | ||||||||||||||||
Closing price of common stock | 55.44 | 49.12 | 52.08 | 39.00 | 52.25 | ||||||||||||||||
AT YEAR-END: | |||||||||||||||||||||
Investment securities | $ | 59,870 | $ | 37,571 | $ | 38,215 | $ | 28,071 | $ | 20,781 | |||||||||||
Total assets | 97,968 | 94,040 | 87,534 | 85,794 | 69,850 | ||||||||||||||||
Deposits | 59,646 | 55,129 | 47,516 | 45,468 | 38,559 | ||||||||||||||||
Long-term debt | 2,659 | 2,458 | 2,222 | 1,270 | 1,217 | ||||||||||||||||
Shareholders’ equity | 6,367 | 6,159 | 5,747 | 4,787 | 3,845 | ||||||||||||||||
Assets under custody (in billions) | $ | 10,121 | $ | 9,497 | $ | 9,370 | $ | 6,171 | $ | 6,203 | |||||||||||
Assets under management (in billions) | 1,441 | 1,354 | 1,106 | 763 | 775 | ||||||||||||||||
Number of employees | 20,965 | 19,668 | 19,850 | 19,501 | 19,753 | ||||||||||||||||
RATIOS: | |||||||||||||||||||||
Continuing operations: | |||||||||||||||||||||
Return on shareholders’ equity | 15.3 | % | 13.3 | % | 13.9 | % | 24.1 | % | 17.3 | % | |||||||||||
Return on average assets | .95 | .84 | .87 | 1.28 | .88 | ||||||||||||||||
Dividend payout | 25.3 | 26.9 | 25.9 | 15.4 | 21.0 | ||||||||||||||||
Net income: | |||||||||||||||||||||
Return on shareholders’ equity | 13.6 | 13.3 | 13.9 | 24.1 | 17.3 | ||||||||||||||||
Return on average assets | .84 | .84 | .87 | 1.28 | .88 | ||||||||||||||||
Dividend payout | 28.5 | 26.9 | 25.9 | 15.4 | 21.0 | ||||||||||||||||
Average shareholders’ equity to average assets | 6.2 | 6.3 | 6.3 | 5.3 | 5.1 | ||||||||||||||||
Tier 1 risk-based capital | 11.7 | 13.3 | 14.0 | 17.1 | 13.6 | ||||||||||||||||
Total risk-based capital | 14.0 | 14.7 | 15.8 | 18.0 | 14.5 | ||||||||||||||||
Tier 1 leverage ratio | 5.6 | 5.5 | 5.6 | 5.6 | 5.4 | ||||||||||||||||
Tangible common equity to adjusted total assets | 4.8 | 4.5 | 4.5 | 4.9 | 4.7 |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
(1) | 2002 earnings per share included the gain on the sale of the divested Corporate Trust business of $.90 per share. | |
(2) | 2003 earnings per share included the combined gains on sales of the divested Corporate Trust and Private Asset Management businesses of $.68 per share, and combined charges for divestiture costs, GSS acquisition merger and integration costs, restructuring expenses, settlement of a state tax matter and a loss on real estate sold equal to $.86 per share. | |
(3) | 2004 earnings per share included GSS merger and integration costs of $.12 per share. |
(1) | 2002 total revenue included the gain on the sale of the divested Corporate Trust business of $495 million. | |
(2) | 2003 total revenue included the combined gains on sales of the divested Corporate Trust and Private Asset Management businesses of $345 million and a loss on real estate sold of $13 million. | |
Significant reconciling items between GAAP and operating-basis diluted earnings per share are described in the footnotes to the chart on page 16. | |
and commercial paper, to meet customers’ needs for high-grade liquid investments, and invest these sources of funds and additional borrowings in assets yielding a higher rate, generating net interest revenue.
INDEX | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Daily Averages of Indices | Average of Month-End Indices | Year-End Indices | |||||||||||||||||||
2005 | 2004 | Change | 2005 | 2004 | Change | 2005 | 2004 | Change | |||||||||||||
S&P 500® | 1207.2 | 1130.6 | 7 | % | 1207.8 | 1134.0 | 7 | % | 1248.3 | 1211.9 | 3 | % | |||||||||
NASDAQ® | 2099.3 | 1986.5 | 6 | 2100.6 | 1992.9 | 5 | 2205.3 | 2175.4 | 1 | ||||||||||||
MSCI® EAFE | 1536.2 | 1337.5 | 15 | 1540.0 | 1344.2 | 15 | 1680.1 | 1515.5 | 11 | ||||||||||||
FEE REVENUE | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | 2003 | Change 2004–2005 | |||||||||||||||
(Dollars in millions) | ||||||||||||||||||
Years ended December 31, | ||||||||||||||||||
Servicing fees | $ | 2,474 | $ | 2,263 | $ | 1,950 | 9 | % | ||||||||||
Management fees | 751 | 623 | 533 | 21 | ||||||||||||||
Trading services | 694 | 595 | 529 | 17 | ||||||||||||||
Securities finance | 330 | 259 | 245 | 27 | ||||||||||||||
Processing fees and other | 302 | 308 | 299 | (2 | ) | |||||||||||||
Total fee revenue | $ | 4,551 | $ | 4,048 | $ | 3,556 | 12 | |||||||||||
ASSETS UNDER CUSTODY | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | 2003 | 2002 | 2001 | 2004–2005 AGR | 2000–2005 CAGR | ||||||||||||||||||||||||
(Dollars in billions) | ||||||||||||||||||||||||||||||
As of December 31, | ||||||||||||||||||||||||||||||
Customers in the U.S.: | ||||||||||||||||||||||||||||||
Mutual funds | $ | 3,891 | $ | 3,385 | $ | 3,105 | $ | 2,719 | $ | 2,794 | 15 | % | 8 | % | ||||||||||||||||
Pensions, insurance and other investment pools | 4,136 | 4,093 | 3,198 | 2,734 | 2,737 | 1 | 8 | |||||||||||||||||||||||
Customers outside the U.S. | 2,094 | 2,019 | 988 | 718 | 672 | 4 | 26 | |||||||||||||||||||||||
Acquired with GSS(1) | – | – | 2,079 | – | – | |||||||||||||||||||||||||
Total | $ | 10,121 | $ | 9,497 | $ | 9,370 | $ | 6,171 | $ | 6,203 | 7 | 11 | ||||||||||||||||||
Non-U.S. securities as a percentage of total | 23 | % | 22 | % | 12 | % | 14 | % | 13 | % | ||||||||||||||||||||
(1) | Assets relating to GSS customers, the majority of which had not yet converted to our systems, at December 31, 2003. For 2005 and 2004, assets related to GSS customers were included in the other categories of assets. |
MIX OF ASSETS UNDER CUSTODY | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | 2003 | |||||||||
(Dollars in billions) | |||||||||||
As of December 31, | �� | ||||||||||
Financial Instrument Mix: | |||||||||||
Equities | $ | 4,814 | $ | 4,688 | $ | 3,479 | |||||
Fixed income | 3,797 | 3,286 | 2,636 | ||||||||
Short-term and other investments | 1,510 | 1,523 | 1,176 | ||||||||
Acquired with GSS(1) | – | – | 2,079 | ||||||||
Total | $ | 10,121 | $ | 9,497 | $ | 9,370 | |||||
(1) | Assets relating to GSS customers, the majority of which had not yet converted to our systems, at December 31, 2003. For 2005 and 2004, assets related to GSS customers were included in the other categories of assets. |
GEOGRAPHIC MIX OF ASSETS UNDER CUSTODY | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | 2003 | |||||||||
(Dollars in billions) | |||||||||||
As of December 31, | |||||||||||
United States | $ | 7,951 | $ | 7,410 | $ | 7,506 | |||||
Other Americas | 330 | 324 | 255 | ||||||||
Europe/Middle East/Africa | 1,454 | 1,403 | 1,251 | ||||||||
Asia/Pacific | 386 | 360 | 358 | ||||||||
Total | $ | 10,121 | $ | 9,497 | $ | 9,370 | |||||
methods for both U.S. and global equities and fixed income securities. SSgA also renewed its focus on exchange traded funds, or ETFs, launching new offerings such as the SPDR® Dividend ETFs, and saw growth in some of its innovative approaches such as the streetTRACKS® Gold Shares.
ASSETS UNDER MANAGEMENT | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | 2003 | 2002 | 2001 | 2004–2005 AGR | 2000–2005 CAGR | ||||||||||||||||||||||||
(Dollars in billions) | ||||||||||||||||||||||||||||||
As of December 31, | ||||||||||||||||||||||||||||||
Equities: | ||||||||||||||||||||||||||||||
Passive | $ | 602 | $ | 596 | $ | 522 | $ | 361 | $ | 398 | 1 | % | 11 | % | ||||||||||||||||
Active | 172 | 131 | 78 | 44 | 39 | 31 | 31 | |||||||||||||||||||||||
Employer securities | 76 | 77 | 76 | 56 | 76 | (1 | ) | – | ||||||||||||||||||||||
Fixed income | 155 | 139 | 98 | 74 | 54 | 12 | 29 | |||||||||||||||||||||||
Money market | 436 | 411 | 332 | 228 | 208 | 6 | 19 | |||||||||||||||||||||||
Total | $ | 1,441 | $ | 1,354 | $ | 1,106 | $ | 763 | $ | 775 | 6 | 15 | ||||||||||||||||||
GEOGRAPHIC MIX OF ASSETS UNDER MANAGEMENT | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in billions) | 2005 | 2004 | 2003 | |||||||||||
As of December 31, | ||||||||||||||
United States | $ | 1,023 | $ | 1,009 | $ | 891 | ||||||||
Other Americas | 24 | 23 | 15 | |||||||||||
Europe/Middle East/ Africa | 275 | 221 | 128 | |||||||||||
Asia/Pacific | 119 | 101 | 72 | |||||||||||
Total | $ | 1,441 | $ | 1,354 | $ | 1,106 | ||||||||
ASSETS UNDER MANAGEMENT | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in billions) | 2005 | 2004 | 2003 | |||||||||||
Years Ended December 31, | ||||||||||||||
Balance at beginning of year | $ | 1,354 | $ | 1,106 | $ | 763 | ||||||||
Net new business | 36 | 145 | 179 | |||||||||||
Market appreciation | 51 | 103 | 164 | |||||||||||
Balance at end of year | $ | 1,441 | $ | 1,354 | $ | 1,106 | ||||||||
NET INTEREST REVENUE | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | 2003 | Change 2004–2005 | |||||||||||||||
(Dollars in millions) | ||||||||||||||||||
Years ended December 31, | ||||||||||||||||||
Interest revenue | $ | 2,930 | $ | 1,787 | $ | 1,539 | 64 | % | ||||||||||
Interest expense | 2,023 | 928 | 729 | 118 | ||||||||||||||
Net interest revenue | 907 | 859 | 810 | 6 | ||||||||||||||
Provision for loan losses | – | (18 | ) | – | ||||||||||||||
Net interest revenue after provision for loan losses | $ | 907 | $ | 877 | $ | 810 | ||||||||||||
Net interest revenue (taxable-equivalent basis) | $ | 949 | $ | 904 | $ | 861 | 5 | % | ||||||||||
Excess of rates earned over rates paid (taxable-equivalent basis) | .82 | % | .95 | % | 1.04 | % | ||||||||||||
Net interest margin (taxable-equivalent basis) | 1.08 | 1.08 | 1.17 | |||||||||||||||
OPERATING EXPENSES | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | 2003 | Change 2004–2005 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Years Ended December 31, | ||||||||||||||||
Salaries and employee benefits | $ | 2,231 | $ | 1,957 | $ | 1,731 | 14 | % | ||||||||
Information systems and communications | 486 | 527 | 551 | (8 | ) | |||||||||||
Transaction processing services | 449 | 398 | 314 | 13 | ||||||||||||
Occupancy | 391 | 363 | 300 | 8 | ||||||||||||
Merger, integration and divestiture | – | 62 | 110 | (100 | ) | |||||||||||
Restructuring | – | 21 | 296 | (100 | ) | |||||||||||
Other | 484 | 431 | 320 | 12 | ||||||||||||
Total operating expenses | $ | 4,041 | $ | 3,759 | $ | 3,622 | 8 | |||||||||
Number of employees at year-end | 20,965 | 19,668 | 19,850 | |||||||||||||
Investment Servicing | Investment Management | Business Divestiture | Other/One-Time | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in millions, unless otherwise noted) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Years ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fee revenue: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Servicing fees | $ | 2,474 | $ | 2,263 | $ | 1,950 | $ | 2,474 | $ | 2,263 | $ | 1,950 | ||||||||||||||||||||||||||||||||||||||||||||||||
Management fees | – | – | – | $ | 751 | $ | 623 | $ | 474 | $ | 59 | 751 | 623 | 533 | ||||||||||||||||||||||||||||||||||||||||||||||
Trading services | 694 | 595 | 529 | – | – | – | – | 694 | 595 | 529 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Securities finance | 260 | 211 | 206 | 70 | 48 | 39 | – | 330 | 259 | 245 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Processing fees and other | 221 | 239 | 277 | 81 | 69 | 34 | 1 | $ | (13 | ) | 302 | 308 | 299 | |||||||||||||||||||||||||||||||||||||||||||||||
Total fee revenue | 3,649 | 3,308 | 2,962 | 902 | 740 | 547 | 60 | (13 | ) | 4,551 | 4,048 | 3,556 | ||||||||||||||||||||||||||||||||||||||||||||||||
Net interest revenue | 826 | 816 | 773 | 81 | 43 | 37 | – | – | 907 | 859 | 810 | |||||||||||||||||||||||||||||||||||||||||||||||||
Provision for loan losses | – | (18 | ) | – | – | – | – | – | – | – | (18 | ) | – | |||||||||||||||||||||||||||||||||||||||||||||||
Net interest revenue after provision for loan losses | 826 | 834 | 773 | 81 | 43 | 37 | – | – | 907 | 877 | 810 | |||||||||||||||||||||||||||||||||||||||||||||||||
(Losses) gains on sales of available-for-sale investment securities, net | (1 | ) | 26 | 23 | – | – | – | – | – | (1 | ) | 26 | 23 | |||||||||||||||||||||||||||||||||||||||||||||||
Gains on sales of divested businesses, net | – | – | – | – | – | – | – | $ | 16 | 345 | 16 | – | 345 | |||||||||||||||||||||||||||||||||||||||||||||||
Total revenue | 4,474 | 4,168 | 3,758 | 983 | 783 | 584 | 60 | 16 | 332 | 5,473 | 4,951 | 4,734 | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating expenses | 3,363 | 3,115 | 2,706 | 678 | 582 | 473 | 37 | – | $ | 62 | 406 | 4,041 | 3,759 | 3,622 | ||||||||||||||||||||||||||||||||||||||||||||||
Income from continuing operations before income taxes | $ | 1,111 | $ | 1,053 | $ | 1,052 | $ | 305 | $ | 201 | $ | 111 | $ | 23 | $ | 16 | $ | (62 | ) | $ | (74 | ) | $ | 1,432 | $ | 1,192 | $ | 1,112 | ||||||||||||||||||||||||||||||||
Pre-tax margin | 25 | % | 25 | % | 28 | % | 31 | % | 26 | % | 19 | % | ||||||||||||||||||||||||||||||||||||||||||||||||
Average assets (in billions) | $ | 96.9 | $ | 92.5 | $ | 80.6 | $ | 2.9 | $ | 2.6 | $ | 2.0 | $ | .1 | $ | 99.8 | $ | 95.1 | $ | 82.7 | ||||||||||||||||||||||||||||||||||||||||
OVERVIEW OF RESULTS OF OPERATIONS | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | $ Change | % Change | ||||||||||||||||
(Dollars in millions, except per share data) | |||||||||||||||||||
Years ended December 31, | |||||||||||||||||||
Total fee revenue | $ | 4,048 | $ | 3,556 | $ | 492 | 14 | % | |||||||||||
Net interest revenue | 859 | 810 | 49 | 6 | |||||||||||||||
Provision for loan losses | (18 | ) | – | (18 | ) | – | |||||||||||||
Gains on sales of available-for-sale investment securities, net | 26 | 23 | 3 | 13 | |||||||||||||||
Gains on sales of divested businesses | – | 345 | (345 | ) | (100 | ) | |||||||||||||
Total revenue | 4,951 | 4,734 | 217 | 5 | |||||||||||||||
Total operating expenses | 3,759 | 3,622 | 137 | 4 | |||||||||||||||
Income before income tax expense | 1,192 | 1,112 | 80 | 7 | |||||||||||||||
Income tax expense | 394 | 390 | 4 | ||||||||||||||||
Net income | $ | 798 | $ | 722 | $ | 76 | 11 | ||||||||||||
Earnings Per Share: | |||||||||||||||||||
Basic | $ | 2.38 | $ | 2.18 | $ | .20 | 9 | ||||||||||||
Diluted | 2.35 | 2.15 | .20 | 9 | |||||||||||||||
Return on shareholders’ equity | 13.3 | % | 13.9 | % | |||||||||||||||
TOTAL REVENUE | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | $ Change | % Change | |||||||||||||||
(Dollars in millions) | ||||||||||||||||||
Years ended December 31, | ||||||||||||||||||
Fee Revenue: | ||||||||||||||||||
Servicing fees | $ | 2,263 | $ | 1,950 | $ | 313 | 16 | % | ||||||||||
Management fees | 623 | 533 | 90 | 17 | ||||||||||||||
Trading services | 595 | 529 | 66 | 12 | ||||||||||||||
Securities finance | 259 | 245 | 14 | 6 | ||||||||||||||
Processing fees and other | 308 | 299 | 9 | 3 | ||||||||||||||
Total fee revenue | 4,048 | 3,556 | 492 | 14 | ||||||||||||||
Net Interest Revenue: | ||||||||||||||||||
Interest revenue | 1,787 | 1,539 | 248 | 16 | ||||||||||||||
Interest expense | 928 | 729 | 199 | 27 | ||||||||||||||
Net interest revenue | 859 | 810 | 49 | 6 | ||||||||||||||
Provision for loan losses | (18 | ) | – | (18 | ) | |||||||||||||
Net interest revenue after provision for loan losses | 877 | 810 | 67 | 8 | ||||||||||||||
Gains on sales of available-for-sale investment securities, net | 26 | 23 | 3 | 13 | ||||||||||||||
Gain on sale of Private Asset Management business, net of exit and other associated costs | – | 285 | (285 | ) | (100 | ) | ||||||||||||
Gain on sale of Corporate Trust business | – | 60 | (60 | ) | (100 | ) | ||||||||||||
Total revenue | $ | 4,951 | $ | 4,734 | $ | 217 | 5 | |||||||||||
OPERATING EXPENSES | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2004 | 2003 | $ Change | % Change | |||||||||||||||
(Dollars in millions) | ||||||||||||||||||
Years ended December 31, | ||||||||||||||||||
Operating Expenses: | ||||||||||||||||||
Salaries and employee benefits | $ | 1,957 | $ | 1,731 | $ | 226 | 13 | % | ||||||||||
Information systems and communications | 527 | 551 | (24 | ) | (4 | ) | ||||||||||||
Transaction processing services | 398 | 314 | 84 | 27 | ||||||||||||||
Occupancy | 363 | 300 | 63 | 21 | ||||||||||||||
Merger, integration and divestiture costs | 62 | 110 | (48 | ) | (44 | ) | ||||||||||||
Restructuring costs | 21 | 296 | (275 | ) | (93 | ) | ||||||||||||
Other | 431 | 320 | 111 | 35 | ||||||||||||||
Total operating expenses | $ | 3,759 | $ | 3,622 | $ | 137 | 4 | |||||||||||
income. Unearned income is recognized in interest revenue to yield a level rate of return on the net investment in the leases.
adjudicated by the court systems of the various tax jurisdictions or may be settled with the taxing authority upon examination or administrative appeal.
2005 | 2004 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
AAA(1) | 90 | % | 93 | % | ||||||
AA | 5 | 2 | ||||||||
A | 3 | 3 | ||||||||
BBB | 1 | 1 | ||||||||
Non-rated | 1 | 1 | ||||||||
100 | % | 100 | % | |||||||
(1) | Includes U.S. Treasury securities |
(Dollars in millions) | 2005 | 2004 | 2003 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Available for Sale: | ||||||||||||||
U.S. Treasury and federal agencies: | ||||||||||||||
Direct obligations | $ | 10,214 | $ | 12,119 | $ | 18,986 | ||||||||
Mortgage-backed securities | 11,138 | 9,147 | 3,762 | |||||||||||
Asset-backed securities | 23,842 | 10,056 | 9,885 | |||||||||||
State and political subdivisions | 1,868 | 1,785 | 1,999 | |||||||||||
Collateralized mortgage obligations | 5,527 | 1,719 | 1,333 | |||||||||||
Other debt investments | 1,695 | 922 | 310 | |||||||||||
Money-market mutual funds | 232 | 97 | 85 | |||||||||||
Other equity securities | 463 | 326 | 238 | |||||||||||
Total | $ | 54,979 | $ | 36,171 | $ | 36,598 | ||||||||
Held to Maturity: | ||||||||||||||
U.S. Treasury and federal agencies | ||||||||||||||
Direct obligations | $ | 1,657 | $ | 1,294 | $ | 1,345 | ||||||||
Mortgage-backed securities | 925 | – | – | |||||||||||
Collateralized mortgage obligations | 2,086 | – | – | |||||||||||
Other investments | 223 | 106 | 272 | |||||||||||
Total | $ | 4,891 | $ | 1,400 | $ | 1,617 | ||||||||
accounting standards do not allow for the change in economic value of our customer liabilities to offset unrealized losses on available-for-sale securities.
Under 1 Year | 1 to 5 Years | 6 to 10 Years | Over 10 Years | |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | |||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||
Available for Sale: | ||||||||||||||||||||||||||||||||
U.S. Treasury and federal agencies | ||||||||||||||||||||||||||||||||
Direct obligations | $ | 2,614 | 2.32 | % | $ | 7,103 | 3.75 | % | $ | 497 | 4.22 | % | ||||||||||||||||||||
Mortgage-backed securities | 40 | 3.49 | 1,107 | 3.76 | 5,154 | 4.34 | $ | 4,837 | 4.75 | % | ||||||||||||||||||||||
Asset-backed securities | 1,818 | 3.92 | 9,373 | 4.36 | 9,309 | 4.59 | 3,342 | 4.40 | ||||||||||||||||||||||||
State and political subdivisions(1) | 321 | 3.56 | 783 | 4.93 | 627 | 4.60 | 137 | 4.34 | ||||||||||||||||||||||||
Collateralized mortgage obligations | 97 | 3.60 | 1,948 | 4.32 | 2,404 | 4.89 | 1,078 | 4.99 | ||||||||||||||||||||||||
Other investments | 685 | 3.24 | 613 | 4.64 | 389 | 4.99 | 8 | 5.86 | ||||||||||||||||||||||||
Total | $ | 5,575 | $ | 20,927 | $ | 18,380 | $ | 9,402 | ||||||||||||||||||||||||
Held to Maturity: | ||||||||||||||||||||||||||||||||
U.S. Treasury and federal agencies | ||||||||||||||||||||||||||||||||
Direct obligations | $ | 856 | 2.30 | % | $ | 801 | 4.12 | % | ||||||||||||||||||||||||
Mortgage-backed securities | — | — | — | — | $ | 226 | 4.70 | % | $ | 699 | 5.04 | % | ||||||||||||||||||||
Collateralized mortgage obligations | — | — | 354 | 4.61 | 1,007 | 4.99 | 725 | 4.97 | ||||||||||||||||||||||||
Other investments | 73 | 2.29 | 65 | 2.69 | 81 | 3.42 | 4 | 3.16 | ||||||||||||||||||||||||
Total | $ | 929 | $ | 1,220 | $ | 1,314 | $ | 1,428 | ||||||||||||||||||||||||
(1) | Yields calculated for interest revenue on non-taxable investment securities include the effect of taxable-equivalent adjustments, a method of presentation in which interest income on tax-exempt securities is adjusted to present the earnings performance on a basis equivalent to interest earned on fully taxable securities, with a corresponding charge to income tax expense. The adjustment is computed using a federal income tax rate of 35%, adjusted for applicable state income taxes, net of the related federal tax benefit. The taxable-equivalent adjustment included in interest revenue to calculate the yields above was $42 million for the year ended December 31, 2005. |
2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | ||||||||||||||||||||||
U.S.: | ||||||||||||||||||||||
Commercial and financial | $ | 2,298 | $ | 1,826 | $ | 2,344 | $ | 1,578 | $ | 2,479 | ||||||||||||
Lease financing | 404 | 373 | 395 | 403 | 413 | |||||||||||||||||
Total U.S. | 2,702 | 2,199 | 2,739 | 1,981 | �� | 2,892 | ||||||||||||||||
Non-U.S.: | ||||||||||||||||||||||
Commercial and industrial | 1,854 | 526 | 424 | 289 | 725 | |||||||||||||||||
Lease financing | 1,926 | 1,904 | 1,858 | 1,719 | 1,639 | |||||||||||||||||
Banks and other financial institutions | – | – | – | 177 | 71 | |||||||||||||||||
Other | – | – | – | 8 | 14 | |||||||||||||||||
Total non-U.S. | 3,780 | 2,430 | 2,282 | 2,193 | 2,449 | |||||||||||||||||
Total loans | $ | 6,482 | $ | 4,629 | $ | 5,021 | $ | 4,174 | $ | 5,341 | ||||||||||||
Average loans and lease financing outstanding | $ | 6,013 | $ | 5,689 | $ | 5,568 | $ | 5,105 | $ | 6,081 | ||||||||||||
YEARS | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total | Under 1 | 1 to 5 | Over 5 | |||||||||||||||
(Dollars in millions) | ||||||||||||||||||
U.S.: | ||||||||||||||||||
Commercial and financial | $ | 2,298 | $ | 2,257 | $ | 34 | $ | 7 | ||||||||||
Lease financing | 404 | 4 | 59 | 341 | ||||||||||||||
Total U.S. | 2,702 | 2,261 | 93 | 348 | ||||||||||||||
Non-U.S.: | ||||||||||||||||||
Commercial and industrial | 1,854 | 1,853 | 1 | – | ||||||||||||||
Lease financing | 1,926 | – | 460 | 1,466 | ||||||||||||||
Total non-U.S. | 3,780 | 1,853 | 461 | 1,466 | ||||||||||||||
Total | $ | 6,482 | $ | 4,114 | $ | 554 | $ | 1,814 | ||||||||||
(Dollars in millions) | ||||||
---|---|---|---|---|---|---|
Loans and leases with predetermined interest rates | $ | 2,327 | ||||
Loans and leases with floating or adjustable interest rates | 41 | |||||
Total | $ | 2,368 | ||||
2005 | 2004 | 2003 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | ||||||||||||||
Germany | $ | 4,217 | $ | 3,971 | $ | 3,834 | ||||||||
United Kingdom | 2,696 | 2,355 | 4,243 | |||||||||||
Canada | 1,463 | 1,383 | 1,175 | |||||||||||
Australia | 1,441 | 1,760 | 1,528 | |||||||||||
Netherlands | 992 | – | – | |||||||||||
Japan | – | 941 | 1,490 | |||||||||||
France | – | – | 1,346 | |||||||||||
Total outstanding | $ | 10,809 | $ | 10,410 | $ | 13,616 | ||||||||
requirements and the evaluations of the major independent credit rating agencies that assign ratings to our public debt.
REGULATORY GUIDELINES | STATE STREET | STATE STREET BANK | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Minimum | Well Capitalized | 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||
Regulatory Capital Ratios: | ||||||||||||||||||||||||
Tier 1 capital | 4 | % | 6 | % | 11.7 | % | 13.3 | % | 10.3 | % | 11.6 | % | ||||||||||||
Total capital | 8 | 10 | 14.0 | 14.7 | 12.5 | 12.5 | ||||||||||||||||||
Tier 1 leverage ratio(1) | 4 | 5 | 5.6 | 5.5 | 5.4 | 5.3 | ||||||||||||||||||
(1) | Regulatory guideline for well-capitalized applies only to State Street Bank. |
We have increased our quarterly dividend twice each year since 1978. Over the last ten years, dividends per share have grown at a 16% compound annual growth rate. Funds for cash distributions to our shareholders by the parent company are derived from a variety of sources. The level of dividends paid to shareholders on our common stock, which was $239 million in 2005, is reviewed regularly and determined by the Board considering our liquidity, capital adequacy and recent earnings history and prospects, as well as economic conditions and other factors deemed relevant. Federal and state banking regulations place certain restrictions on dividends paid by subsidiary banks to the parent holding company. In addition, bank regulators have the authority to prohibit bank holding companies from paying dividends if they deem such payment to be an unsafe or unsound practice. At December 31, 2005, the parent company had $9.63 billion of liquid assets with which to meet dividend declaration and other payment obligations. Information concerning dividends from our subsidiary banks is in Note 13 of the “Notes to Consolidated Financial Statements” included in this Form 10-K under Item 8.
• | Market risk: the risk of adverse financial impact due to fluctuations in market prices, primarily as they relate to our trading activities |
• | Interest-rate risk: the risk of loss in non-trading, asset and liability management positions, primarily the impact of adverse movements in interest rates on the repricing mismatches that exist between balance sheet assets and liabilities |
• | Credit risk: the risk of loss that may result from the default or downgrade of a borrower or counterparty |
• | Operational risk: the risk of loss from inadequate or failed internal processes, people and systems, or from external events, which is consistent with the Basel II definition |
• | Business risk: the risk of adverse changes in our earnings from business factors, including changes in the competitive environment, changes in the operational economics of business activities, and the effect of strategic and reputation risks |
Standard & Poor’s | Moody’s | Fitch | DBRS | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
State Street Corporation: | ||||||||||||||
Short-term commercial paper | A-1 | + | P-1 | F1 | + | R-1 | (mid) | |||||||
Senior debt | AA | – | Aa3 | AA | – | AA | (low) | |||||||
Subordinated debt | A | + | A1 | A | + | A | (high) | |||||||
Capital securities | A | A1 | A | + | A | (high) | ||||||||
State Street Bank: | ||||||||||||||
Short-term deposits | A-1 | + | P-1 | F1 | + | R-1 | (mid) | |||||||
Long-term deposits | AA | Aa2 | AA | AA | ||||||||||
Senior debt | AA | – | Aa2 | AA | – | AA | ||||||||
Subordinated debt | AA | – | Aa3 | A | + | AA | (low) | |||||||
Outlook | Stable | Stable | Stable | Stable | ||||||||||
CONTRACTUAL CASH OBLIGATIONS | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
PAYMENTS DUE BY PERIOD | |||||||||||||||
Total | Less than 1 year | 1–3 years | 4–5 years | Over 5 years | |||||||||||
(Dollars in millions) | |||||||||||||||
As of December 31, 2005 | |||||||||||||||
Long-term debt(1) | $ | 4,083 | $ | 138 | $ | 276 | $ | 558 | $ | 3,111 | |||||
Operating leases | 1,167 | 180 | 292 | 227 | 468 | ||||||||||
Capital lease obligations | 925 | 51 | 103 | 104 | 667 | ||||||||||
COVERS, a component of SPACES | 2 | 2 | – | – | – | ||||||||||
Total contractual cash obligations | $ | 6,177 | $ | 371 | $ | 671 | $ | 889 | $ | 4,246 | |||||
(1) | Long-term debt above excludes capital leases (reported as a separate line item) and the effect of interest-rate swaps. Interest payments were calculated at the stated rate, with the exception of floating-rate debt for which payments were calculated using the indexed rate in effect at December 31, 2005. |
under Item 8. We have obligations under pension and other postretirement benefit plans, which are more fully described in Note 17 of the “Notes to Consolidated Financial Statements,” which are not included in the above table.
OTHER COMMERCIAL COMMITMENTS | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
TENURE OF COMMITMENT | |||||||||||||||||
Total amounts committed(1) | Less than 1 year | 1–3 years | 4–5 years | Over 5 years | |||||||||||||
(Dollars in millions) | |||||||||||||||||
As of December 31, 2005 | |||||||||||||||||
Indemnified securities financing | $ | 372,863 | $ | 372,863 | �� | ||||||||||||
Liquidity asset purchase agreements | 24,039 | 19,956 | $ | 2,200 | $ | 1,402 | $ | 481 | |||||||||
Unfunded commitments to extend credit | 14,403 | 11,887 | 602 | 1,824 | 90 | ||||||||||||
Standby letters of credit | 4,689 | 1,249 | 1,595 | 1,259 | 586 | ||||||||||||
Total commercial commitments | $ | 415,994 | $ | 405,955 | $ | 4,397 | $ | 4,485 | $ | 1,157 | |||||||
(1) | Amounts committed are reported net of participations. |
Street. Chaired by the head of ERM, the MRC focuses on the review of business activities with significant risk content and the assessment of risk management programs and initiatives, and also serves as the credit policy committee for State Street. The Capital Committee, chaired by the Chief Financial Officer, oversees the management of our regulatory and economic capital, the determination of the framework for capital allocation and strategies for capital structure and debt and equity issuances. ALCO, chaired by the Treasurer, oversees the management of our consolidated balance sheet, including management of our global liquidity and interest-rate risk positions. The Fiduciary Committee reviews the criteria for the acceptance of fiduciary duties, and assists our business lines with their fiduciary responsibilities executed on behalf of customers. Several other committees with specialized risk management functions report to the MRC.
VALUE-AT-RISK | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Annual Average | Maximum | Minimum | ||||||||||||
(Dollars in millions) | ||||||||||||||
Years ended December 31, | ||||||||||||||
2005: | ||||||||||||||
Foreign exchange products | $ | 1.3 | $ | 3.3 | $ | .5 | ||||||||
Interest-rate products | 1.1 | 3.0 | .3 | |||||||||||
2004: | ||||||||||||||
Foreign exchange products | $ | 1.3 | $ | 3.5 | $ | .3 | ||||||||
Interest-rate products | 1.6 | 3.0 | 1.0 | |||||||||||
NIR-AT-RISK | Estimated Exposure to Net Interest Revenue | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | |||||||||
(Dollars in millions) Rate Change | ||||||||||
+ 100 bps shock | $ | (58 | ) | $ | (49 | ) | ||||
– 100 bps shock | (5 | ) | 3 | |||||||
+ 100 bps ramp | (35 | ) | (39 | ) | ||||||
– 100 bps ramp | 9 | 18 | ||||||||
ECONOMIC VALUE OF EQUITY | Estimated Exposure to Economic Value of Equity | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | |||||||||
(Dollars in millions) Rate Change | ||||||||||
+ 200 bps shock | $ | (714 | ) | $ | (775 | ) | ||||
– 200 bps shock | 138 | 467 | ||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | ||||||||||||||||||||||
U.S.: | ||||||||||||||||||||||
Balance at beginning of year | $ | 14 | $ | 43 | $ | 43 | $ | 40 | $ | 41 | ||||||||||||
Provision for loan losses | – | (15 | ) | – | 4 | 8 | ||||||||||||||||
Loan charge-offs — commercial and financial | – | – | – | (3 | ) | (9 | ) | |||||||||||||||
Recoveries — commercial and financial | – | – | – | 3 | – | |||||||||||||||||
Transferred upon sale(1) | – | – | – | (1 | ) | – | ||||||||||||||||
Reclassification(2) | – | (14 | ) | – | – | – | ||||||||||||||||
Balance at end of year — U.S. | 14 | 14 | 43 | 43 | 40 | |||||||||||||||||
Non-U.S.: | ||||||||||||||||||||||
Balance at beginning of year | 4 | 18 | 18 | 18 | 16 | |||||||||||||||||
Provision for loan losses | – | (3 | ) | – | – | 2 | ||||||||||||||||
Loan charge-offs | – | – | – | – | – | |||||||||||||||||
Reclassification(2) | – | (11 | ) | – | – | – | ||||||||||||||||
Balance at end of year — Non-U.S. | 4 | 4 | 18 | 18 | 18 | |||||||||||||||||
Total balance at end of year | $ | 18 | $ | 18 | $ | 61 | $ | 61 | $ | 58 | ||||||||||||
Ratio of net charge-offs (recoveries) to average loans outstanding | – | – | – | – | .14 | % | ||||||||||||||||
(1) | In December 2002, we completed the sale of our Global Trade Banking business, which included the transfer of $1 million of the allowance for loan losses. |
(2) | During 2004, we reclassified $25 million of the allowance for loan losses to other liabilities as a reserve for off-balance sheet commitments. Subsequent to the reclassification, the reserve for off-balance sheet commitments was reduced by $10 million, and recorded as an offset to other operating expenses. |
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 agent, cash and U.S. government securities totaling $387.22 billion and $360.61 billion as collateral for indemnified securities financing at December 31, 2005 and 2004, respectively.
analysis, stress-testing and management judgment to help assess the potential effect on State Street attributable to business risk. Management and control of business risks is generally the responsibility of the business units as part of their overall and strategic planning and internal risk management processes.
TO OUR SHAREHOLDERS
State Street delivered value in 2005.
We delivered value to our shareholders, our customers, our employees and the communities in which we operate. We achieved this value by focusing on delivering for our customers, executing our plan against our goals, performing consistently for our shareholders, providing more opportunities for our employees, and continuing to give back to the communities where we do business.
Our goals for 2005 included growth in operating earnings per share of between 10 and 15 percent, growth in operating revenue of between 8 and 12 percent, and operating return on shareholders’ equity of between 14 and 17 percent. We achieved these goals, increasing operating earnings per share from continuing operations by 14 percent and operating revenue by 10 percent and recording return on shareholders’ equity from continuing operations of 15.3 percent. Assets under custody hit an all-time high of $10.1 trillion and assets under management rose to a record $1.4 trillion.
2005 was our 28th consecutive year of operating earnings per share growth and our 27th consecutive year of dividend increases, which rose 12 percent. We also repurchased 13 million shares of our stock, putting our share count at 334 million shares outstanding, just as it was at the end of 2004.
I measure the year’s achievements in four ways.
Financial
We remained focused on the bottom line in 2005, carefully balancing revenue growth with continued expense management. This focus allowed us to generate positive operating leverage for the year, an objective I set out to accomplish when I took over as chairman and chief executive officer in July 2004, and one that I continue to target. I view our 2005 results as a start, and an indication that we are heading in the right direction.
Business growth across the company helped fuel our revenue increase in 2005. We added more than 2,000 new investment servicing and investment management wins in 2005, a result of our strong sales culture and our ability to execute. State Street Global Advisors (SSgA), our investment management arm and the largest institutional asset manager in the world, also posted significant growth in 2005 and improved its contribution to State Street overall. SSgA now represents 21 percent of State Street’s total pretax income, up from 17 percent a year ago.
We continued to deepen existing customer relationships and expand new product capabilities. These factors, combined with new business growth, enabled us to deliver what I consider to be better top-line performance than our peers.
We continue to see significant opportunities for growth outside of the United States, which accounted for 39 percent of State Street’s revenue in 2005, up from 37 percent at the end of 2004. I have set a goal of increasing this number to 50 percent over time, fueled in part by the growth of savings and retirement assets in Europe and the Asia-Pacific region and the globalization of investing.
In addition to revenue growth, positive operating leverage was achieved through expense control. By monitoring our headcount, adding mainly to support new business wins and by better aligning our real estate portfolio with our needs, we slowed our rate of expense growth. Our strengthened and more cost-effective global servicing model, shaped in part by new regulatory requirements, helped us to better serve our customers in the locations where they do business. We now have processing hubs in multiple locations around the world including Canada and India.
The centralized treasury group that we formed early in 2005 has improved management of our balance sheet, which is driven by customer liabilities. To better position State Street for rising interest rates, in 2005 we expanded the investment portfolio and adjusted the mix of investments to include higher yielding floating-rate securities, ending the year with a conservatively invested portfolio, 95 percent of which was AA rated or better.
Customer
State Street’s singular focus on providing large, global institutional investors with unparalleled service and value remained a differentiator for our company in 2005. Our ability to handle complex transactions, create innovative solutions and improve efficiencies helped us to attract new customers and add significant value to our existing customer relationships around the world.
2,086 | 14% |
new investment servicing and | growth in operating earnings per share |
investment management wins | from continuing operations |
Major wins that fell into the expanded business category in 2005 included a landmark investment manager operations outsourcing renewal from Scottish Widows Investment Partnership in Edinburgh, extending our relationship with this customer well into a second decade. The year’s biggest investment servicing win, from Columbia Management Advisors, LLC, the asset management arm of Bank of America, gave State Street a key role in one of the largest fund integrations in the history of the mutual fund industry. This piece of business expands upon our existing relationship with a fund family that was acquired by Bank of America and illustrates our ability to earn the trust and confidence of our customers, as does another investment servicing appointment from Charles Schwab Investment Management for $149 billion in assets. Two wins from Volkswagen Group – one in the United Kingdom and the other in Germany – are further proof of our ability to expand many of the custody and accounting relationships we established years ago.
We also established many new customer relationships in 2005 in all major geographies and across all our capabilities. These relationships include conducting one of the largest-ever transition management assignments for a customer in Japan and providing servicing and management for a wide range of pension and investment schemes in Europe and Asia-Pacific. State Street’s ability to develop new products and services for both new and existing customers continues to set us apart.
State Street Global Advisors played an important role during the year in helping to enhance Asia’s bond markets as manager of the ABF Pan Asia Bond Index Fund, a key component of the Asian Bond Fund 2, an initiative developed by a group of 11 central banks and monetary authorities designed to provide governments with an additional source of credit. The fund invests in the local currency debt of eight countries in Asia, increasing investors access to this vital region of the world.
10% | 28 |
increase in operating revenue | consecutive years of growth in |
| operating earnings per share |
Product innovation continues to be a focus for us. State Street Global Advisors developed several new strategies including Global Alpha Plus, an innovative investment strategy designed to achieve consistent excess returns. It also launched a number of liability-driven investment strategies aimed at better matching assets to liabilities for pension funds. SSgA’s growing active product array contributed to more than half of its net new revenue in 2005. With a renewed focus on exchange-traded funds, SSgA also launched nine new ETFs during the year, including the SPDR® Dividend, and saw strong growth in some of its innovative approaches such as the streetTRACKS® Gold Shares.
Our research and trading capabilities, including foreign exchange, equity execution, transition management and securities finance activities, also posted record results in 2005. Daily trading volume on FX Connect,® our multibank electronic trading system, surpassed $45 billion and State Street remained the unmatched leader in transition management, managing more than $380 billion in transitions during the year. Continued demand for our quantitative investment research led us to expand our successful State Street Investor Confidence Index®, which now includes regional views for Europe, North America and the Asia-Pacific region.
As we advance our effort to serve customers in all the markets where they do business, we strengthened our presence in 2005 in Switzerland, the Netherlands and Hong Kong, and opened a representative office in Beijing, China. These markets will play an important role in our goal to increase revenue outside the United States.
Governance
State Street has made several recent changes to its corporate governance policies. First, we created a new chief compliance officer position charged with centralizing and overseeing State Street’s compliance program. Our board of directors – 13 out of 14 of whom qualify as independent under the New York Stock Exchange listing standards – are now elected annually, eliminating three-year terms of the past. Shareholders also now annually ratify the appointment of our auditors, Ernst & Young LLP. In 2005, the board adopted a majority voting standard requiring a director or nominee who receives a “withhold” vote from the majority of outstanding shares in an uncontested election of directors to submit his or her resignation, to be considered by the Nominating and Corporate Governance Committee.
Talent
Great companies are built around extraordinary individual execution. We must continue to invest in State Street’s future by developing and leveraging our deep pool of talented professionals. Today, we are investing in our employees at a higher level than ever before. In 2005, we added more training, enhanced our salary and promotions process, and undertook several initiatives to move executives within State Street globally to provide a deeper bench of talent that supports our succession planning. One such example is the appointment in 2005 of Bill Hunt, an 11-year company veteran, to lead State Street Global Advisors.
State Street employees continue to give their time and money to improve the communities where we live and work. In a year of unprecedented natural disasters around the world, State Street colleagues offered their help and support to a variety of relief efforts, while continuing to support local charitable endeavors. More than a quarter of our workforce invested approximately 30,000 hours of volunteer time around the globe last year. Giving back is an inherent part of the State Street culture and a source of great corporate pride.
In 2005, I believe State Street became a stronger, more efficient and more focused company. As we move into 2006, I’m encouraged that our business pipeline remains strong, and that we’re executing well against our strategic objectives. For 2006, we have once again set financial goals of achieving revenue growth between 8 and 12 percent, earnings per share growth between 10 and 15 percent and return on shareholders’ equity between 14 and 17 percent. We are currently targeting the middle of those ranges.
In my 18 months as State Street’s chairman and CEO, conversations with our customers have assured me of one thing: When customers come to State Street, they get a value they cannot find anywhere else. We delivered that value in 2005, and I will keep working to build on that value for all of our stakeholders in the future.
Sincerely,
Ronald E. Logue
Chairman and Chief Executive Officer
STATE STREET CORPORATION
2005 | 2004 | 2003 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions, except per share data or where otherwise indicated) | ||||||||||||
Years ended December 31, | ||||||||||||
Fee Revenue: | ||||||||||||
Servicing fees | $ | 2,474 | $ | 2,263 | $ | 1,950 | ||||||
Management fees | 751 | 623 | 533 | |||||||||
Trading services | 694 | 595 | 529 | |||||||||
Securities finance | 330 | 259 | 245 | |||||||||
Processing fees and other | 302 | 308 | 299 | |||||||||
Total fee revenue | 4,551 | 4,048 | 3,556 | |||||||||
Net Interest Revenue: | ||||||||||||
Interest revenue | 2,930 | 1,787 | 1,539 | |||||||||
Interest expense | 2,023 | 928 | 729 | |||||||||
Net interest revenue | 907 | 859 | 810 | |||||||||
Provision for loan losses | – | (18 | ) | – | ||||||||
Net interest revenue after provision for loan losses | 907 | 877 | 810 | |||||||||
(Losses) gains on sales of available-for-sale investment securities, net | (1 | ) | 26 | 23 | ||||||||
Gain on sale of Private Asset Management business, net of exit and other associated costs | 16 | – | 285 | |||||||||
Gain on sale of Corporate Trust business | – | – | 60 | |||||||||
Total revenue | 5,473 | 4,951 | 4,734 | |||||||||
Operating Expenses: | ||||||||||||
Salaries and employee benefits | 2,231 | 1,957 | 1,731 | |||||||||
Information systems and communications | 486 | 527 | 551 | |||||||||
Transaction processing services | 449 | 398 | 314 | |||||||||
Occupancy | 391 | 363 | 300 | |||||||||
Merger, integration and divestiture costs | – | 62 | 110 | |||||||||
Restructuring costs | – | 21 | 296 | |||||||||
Other | 484 | 431 | 320 | |||||||||
Total operating expenses | 4,041 | 3,759 | 3,622 | |||||||||
Income from continuing operations before income tax expense | 1,432 | 1,192 | 1,112 | |||||||||
Income tax expense from continuing operations | 487 | 394 | 390 | |||||||||
Income from continuing operations | 945 | 798 | 722 | |||||||||
Loss from discontinued operations | (165 | ) | – | – | ||||||||
Income tax benefit from discontinued operations | (58 | ) | – | – | ||||||||
Net loss from discontinued operations | (107 | ) | – | – | ||||||||
Net income | $ | 838 | $ | 798 | $ | 722 | ||||||
Earnings Per Share From Continuing Operations: | ||||||||||||
Basic | $ | 2.86 | $ | 2.38 | $ | 2.18 | ||||||
Diluted | 2.82 | 2.35 | 2.15 | |||||||||
Loss Per Share From Discontinued Operations: | ||||||||||||
Basic | $ | (.33 | ) | $ | – | $ | – | |||||
Diluted | (.32 | ) | – | – | ||||||||
Earnings Per Share: | ||||||||||||
Basic | $ | 2.53 | $ | 2.38 | $ | 2.18 | ||||||
Diluted | 2.50 | 2.35 | 2.15 | |||||||||
Average Shares Outstanding (in thousands): | ||||||||||||
Basic | 330,361 | 334,606 | 331,692 | |||||||||
Diluted | 334,636 | 339,605 | 335,326 | |||||||||
2005 | 2004 | |||||||
---|---|---|---|---|---|---|---|---|
(Dollars in millions) | ||||||||
As of December 31, | ||||||||
Assets | ||||||||
Cash and due from banks | $ | 2,684 | $ | 2,035 | ||||
Interest-bearing deposits with banks | 11,275 | 20,634 | ||||||
Securities purchased under resale agreements | 8,679 | 12,878 | ||||||
Federal funds sold | – | 5,450 | ||||||
Trading account assets | 764 | 745 | ||||||
Investment securities available for sale (including securities pledged of $26,573 and $27,273) | 54,979 | 36,171 | ||||||
Investment securities held to maturity (fair value of $4,815 and $1,389) | 4,891 | 1,400 | ||||||
Loans (less allowance of $18 and $18) | 6,464 | 4,611 | ||||||
Premises and equipment (net of accumulated depreciation of $2,149 and $1,923) | 1,453 | 1,444 | ||||||
Accrued income receivable | 1,364 | 1,204 | ||||||
Goodwill | 1,337 | 1,497 | ||||||
Other intangible assets | 459 | 494 | ||||||
Other assets | 3,619 | 5,477 | ||||||
Total assets | $ | 97,968 | $ | 94,040 | ||||
Liabilities | ||||||||
Deposits: | ||||||||
Noninterest-bearing | $ | 9,402 | $ | 13,671 | ||||
Interest-bearing — U.S. | 2,379 | 2,843 | ||||||
Interest-bearing — Non-U.S. | 47,865 | 38,615 | ||||||
Total deposits | 59,646 | 55,129 | ||||||
Securities sold under repurchase agreements | 20,895 | 21,881 | ||||||
Federal funds purchased | 1,204 | 435 | ||||||
Other short-term borrowings | 1,219 | 1,343 | ||||||
Accrued taxes and other expenses | 2,632 | 2,603 | ||||||
Other liabilities | 3,346 | 4,032 | ||||||
Long-term debt | 2,659 | 2,458 | ||||||
Total liabilities | 91,601 | 87,881 | ||||||
Commitments and contingencies (Note 9) | ||||||||
Shareholders’ Equity | ||||||||
Preferred stock, no par: authorized 3,500,000 shares; issued none | ||||||||
Common stock, $1 par: authorized 500,000,000 shares; issued 337,126,000 and 337,126,000 shares | 337 | 337 | ||||||
Surplus | 266 | 289 | ||||||
Retained earnings | 6,189 | 5,590 | ||||||
Accumulated other comprehensive (loss) income | (231 | ) | 92 | |||||
Treasury stock, at cost (3,501,000 and 3,481,000 shares) | (194 | ) | (149 | ) | ||||
Total shareholders’ equity | 6,367 | 6,159 | ||||||
Total liabilities and shareholders’ equity | $ | 97,968 | $ | 94,040 | ||||
COMMON STOCK | TREASURY STOCK | |||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shares | Amount | Surplus | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Shares | Amount | Total | |||||||||||||||||||||||||
(Dollars in millions, except per share data, shares in thousands) | ||||||||||||||||||||||||||||||||
Balance at December 31, 2002 | 329,992 | $ | 330 | $ | 104 | $ | 4,472 | $ | 106 | 5,065 | $ | (225 | ) | $ | 4,787 | |||||||||||||||||
Comprehensive Income: | ||||||||||||||||||||||||||||||||
Net income | 722 | 722 | ||||||||||||||||||||||||||||||
Change in net unrealized gains/losses on available-for-sale securities, net of related taxes of $(20) | (26 | ) | (26 | ) | ||||||||||||||||||||||||||||
Foreign currency translation, net of related taxes of $68 | 109 | 109 | ||||||||||||||||||||||||||||||
Change in unrealized gains/losses on cash flow hedges, net of related taxes of $2 | 3 | 3 | ||||||||||||||||||||||||||||||
Total comprehensive income | 722 | 86 | 808 | |||||||||||||||||||||||||||||
Cash dividends declared — $.56 per share | (187 | ) | (187 | ) | ||||||||||||||||||||||||||||
Present value of the estimated fees payable with respect to SPACES, pursuant to January 14, 2003 Registration Statement | (57 | ) | (57 | ) | ||||||||||||||||||||||||||||
Common stock acquired | 80 | (3 | ) | (3 | ) | |||||||||||||||||||||||||||
Common Stock Issued Pursuant To: | ||||||||||||||||||||||||||||||||
Public stock offering | 7,153 | 7 | 260 | 267 | ||||||||||||||||||||||||||||
Stock awards and options exercised, including tax benefit of $13 | (13 | ) | 4 | (2,025 | ) | 89 | 93 | |||||||||||||||||||||||||
Debt conversion | (1 | ) | (21 | ) | 1 | – | ||||||||||||||||||||||||||
Modified stock awards and options for restructuring | 19 | (385 | ) | 17 | 36 | |||||||||||||||||||||||||||
Other | (56 | ) | 3 | 3 | ||||||||||||||||||||||||||||
Balance at December 31, 2003 | 337,132 | 337 | 329 | 5,007 | 192 | 2,658 | (118 | ) | 5,747 | |||||||||||||||||||||||
Comprehensive Income: | ||||||||||||||||||||||||||||||||
Net income | 798 | 798 | ||||||||||||||||||||||||||||||
Change in net unrealized gains/losses on available-for-sale securities, net of related taxes of $(91) | (130 | ) | (130 | ) | ||||||||||||||||||||||||||||
Change in minimum pension liability, net of related taxes of $(19) | (26 | ) | (26 | ) | ||||||||||||||||||||||||||||
Foreign currency translation, net of related taxes of $17 | 85 | 85 | ||||||||||||||||||||||||||||||
Change in unrealized gains/losses on cash flow hedges, net of related taxes of $(1) | (3 | ) | (3 | ) | ||||||||||||||||||||||||||||
Change in unrealized gains/losses on hedges of net investments in foreign subsidiaries, net of related taxes of $(14) | (26 | ) | (26 | ) | ||||||||||||||||||||||||||||
Total comprehensive income | 798 | (100 | ) | 698 | ||||||||||||||||||||||||||||
Cash dividends declared — $.64 per share | (215 | ) | (215 | ) | ||||||||||||||||||||||||||||
Common stock acquired | 4,098 | (178 | ) | (178 | ) | |||||||||||||||||||||||||||
Impact of fixing the variable-share settlement rate of SPACES | (26 | ) | (26 | ) | ||||||||||||||||||||||||||||
Common Stock Issued Pursuant to: | ||||||||||||||||||||||||||||||||
Stock awards and options exercised, including tax benefit of $20 | (6 | ) | (10 | ) | (3,128 | ) | 141 | 131 | ||||||||||||||||||||||||
Debt conversion | (4 | ) | (104 | ) | 4 | – | ||||||||||||||||||||||||||
Other | (43 | ) | 2 | 2 | ||||||||||||||||||||||||||||
Balance at December 31, 2004 | 337,126 | 337 | 289 | 5,590 | 92 | 3,481 | (149 | ) | 6,159 | |||||||||||||||||||||||
Comprehensive Income: | ||||||||||||||||||||||||||||||||
Net income | 838 | 838 | ||||||||||||||||||||||||||||||
Change in net unrealized gains/losses on available-for-sale securities, net of related taxes of $(150) | (229 | ) | (229 | ) | ||||||||||||||||||||||||||||
Foreign currency translation, net of related taxes of $(54) | (140 | ) | (140 | ) | ||||||||||||||||||||||||||||
Change in unrealized gains/losses on hedges of net investments in foreign subsidiaries, net of related taxes of $20 | 37 | 37 | ||||||||||||||||||||||||||||||
Change in unrealized gains/losses on cash flow hedges, net of related taxes of $6 | 9 | 9 | ||||||||||||||||||||||||||||||
Total comprehensive income | 838 | (323 | ) | 515 | ||||||||||||||||||||||||||||
Cash dividends declared — $.72 per share | (239 | ) | (239 | ) | ||||||||||||||||||||||||||||
Common stock acquired | 13,130 | (664 | ) | (664 | ) | |||||||||||||||||||||||||||
Common Stock Issued Pursuant to: | ||||||||||||||||||||||||||||||||
SPACES | (73 | ) | (8,712 | ) | 418 | 345 | ||||||||||||||||||||||||||
Stock awards and options exercised, including tax benefit of $20 | 50 | (4,319 | ) | 197 | 247 | |||||||||||||||||||||||||||
Other | (79 | ) | 4 | 4 | ||||||||||||||||||||||||||||
Balance at December 31, 2005 | 337,126 | $ | 337 | $ | 266 | $ | 6,189 | $ | (231 | ) | 3,501 | $ | (194 | ) | $ | 6,367 | ||||||||||||||||
2005 | 2004 | 2003 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | ||||||||||||
Years ended December 31, | ||||||||||||
Operating Activities: | ||||||||||||
Net income | $ | 838 | $ | 798 | $ | 722 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Non-cash adjustments for depreciation, amortization, accretion, provision for loan losses and deferred income tax expense | 499 | 639 | 613 | |||||||||
Write-down of assets related to discontinued operations | 150 | – | – | |||||||||
Gains on sales of divested businesses, net of exit and other associated costs | (16 | ) | – | (345 | ) | |||||||
Securities losses (gains), net | 1 | (26 | ) | (23 | ) | |||||||
Change in trading account assets, net | (19 | ) | (340 | ) | 579 | |||||||
Other, net | 1,030 | (655 | ) | (57 | ) | |||||||
Net Cash Provided by Operating Activities | 2,483 | 416 | 1,489 | |||||||||
Investing Activities: | ||||||||||||
Net decrease in interest-bearing deposits with banks | 9,359 | 1,104 | 6,405 | |||||||||
Net decrease (increase) in federal funds sold and securities purchased under resale agreements | 9,649 | (8,777 | ) | 7,664 | ||||||||
Proceeds from sales of available-for-sale securities | 3,299 | 8,035 | 13,676 | |||||||||
Proceeds from maturities of available-for-sale securities | 22,129 | 15,387 | 24,033 | |||||||||
Purchases of available-for-sale securities | (44,758 | ) | (23,408 | ) | (46,799 | ) | ||||||
Proceeds from maturities of held-to-maturity securities | 1,132 | 1,107 | 1,362 | |||||||||
Purchases of held-to-maturity securities | (4,623 | ) | (892 | ) | (1,440 | ) | ||||||
Net (increase) decrease in loans | (1,801 | ) | 451 | (760 | ) | |||||||
Proceeds from sales of divested businesses, net | 16 | – | 347 | |||||||||
Business acquisitions, net of cash acquired | (43 | ) | (100 | ) | (1,250 | ) | ||||||
Purchases of equity investments and other long-term assets | (55 | ) | (86 | ) | (32 | ) | ||||||
Purchases of premises and equipment | (314 | ) | (336 | ) | (324 | ) | ||||||
Other | 58 | 60 | 27 | |||||||||
Net Cash (Used) Provided by Investing Activities | (5,952 | ) | (7,455 | ) | 2,909 | |||||||
Financing Activities: | ||||||||||||
Net (decrease) increase in time deposits | (5,341 | ) | 3,569 | 2,922 | ||||||||
Net increase (decrease) in all other deposits | 9,895 | 4,015 | (2,103 | ) | ||||||||
Net decrease in short-term borrowings | (341 | ) | (1,603 | ) | (4,036 | ) | ||||||
Proceeds from issuance of long-term debt, net of issuance costs | 595 | – | 742 | |||||||||
Payments for long-term debt and obligations under capital leases | (370 | ) | (9 | ) | (102 | ) | ||||||
Proceeds from SPACES, net of issuance costs | 345 | – | 257 | |||||||||
Purchases of common stock | (664 | ) | (178 | ) | (3 | ) | ||||||
Proceeds from issuance of treasury stock for stock awards and options exercised | 231 | 113 | 119 | |||||||||
Payments for cash dividends | (232 | ) | (209 | ) | (179 | ) | ||||||
Net Cash Provided (Used) by Financing Activities | 4,118 | 5,698 | (2,383 | ) | ||||||||
Net Increase (Decrease) | 649 | (1,341 | ) | 2,015 | ||||||||
Cash and Due from Banks at Beginning of Year | 2,035 | 3,376 | 1,361 | |||||||||
Cash and Due from Banks at End of Year | $ | 2,684 | $ | 2,035 | $ | 3,376 | ||||||
Supplemental Disclosure: | ||||||||||||
Interest paid | $ | 1,965 | $ | 911 | $ | 736 | ||||||
Income taxes paid | 331 | 211 | 175 | |||||||||
Non-cash investments in capital leases | 9 | 235 | 287 | |||||||||
resale agreements, allowing borrowers the right of collateral substitution and/or short-notice termination. We revalue these securities daily to determine if additional collateral is necessary from the borrower to protect us against credit exposure. We can use these securities as collateral for repurchase agreements. For securities sold under repurchase agreements collateralized by our U.S. government securities portfolio, the dollar value of the U.S. government securities remains in investment securities in our statement of condition. Where a master netting agreement exists or both parties are members of a common clearing organization, resale and repurchase agreements with the same counterparty or clearing house and maturity date are reported on a net basis.
2005 | 2004 | 2003 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dividend yield | 1.85 | % | 1.35 | % | 1.46 | % | ||||||||
Expected volatility | 28.70 | 27.10 | 30.00 | |||||||||||
Risk-free interest rate | 4.19 | 3.02 | 3.10 | |||||||||||
Expected option lives (in years) | 7.8 | 5.0 | 5.2 | |||||||||||
2005 | 2004 | 2003 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions, except per share data) | ||||||||||||||
Years Ended December 31, | ||||||||||||||
Net income, as reported | $ | 838 | $ | 798 | $ | 722 | ||||||||
Add: Stock option compensation expense included in reported net income, net of related taxes | 20 | 15 | 22 | (1) | ||||||||||
Deduct: Total stock option compensation expense determined under fair value method for all awards, net of related taxes | (27 | ) | (42 | ) | (61 | ) | ||||||||
Pro forma net income | $ | 831 | $ | 771 | $ | 683 | ||||||||
Earnings per share: | ||||||||||||||
Basic — as reported | $ | 2.53 | $ | 2.38 | $ | 2.18 | ||||||||
Basic —pro forma | 2.51 | 2.30 | 2.06 | |||||||||||
Diluted — as reported | $ | 2.50 | $ | 2.35 | $ | 2.15 | ||||||||
Diluted —pro forma | 2.48 | 2.27 | 2.04 | |||||||||||
(1) | We accelerated the recognition of stock option-related expense of $29 million, or $19 million after-tax, in the second quarter of 2003 in connection with restructuring activities. The remaining $3 million of after-tax expense related to the adoption of fair value accounting for stock options. See Note 19 for additional information related to restructuring costs. |
guidance in this FSP nullifies certain previous accounting requirements of Emerging Issues Task Force Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” and is effective for reporting periods beginning after December 15, 2005. We do not expect application of the FSP to have a significant impact on our consolidated financial position or results of operations.
2005 | 2004 | |||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Gross Unrealized | Gross Unrealized | |||||||||||||||||||||||||||||||
Amortized Cost | Gains | Losses | Fair Value | Amortized Cost | Gains | Losses | Fair Value | |||||||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||||||||||
Available for Sale: | ||||||||||||||||||||||||||||||||
U.S. Treasury and federal agencies: | ||||||||||||||||||||||||||||||||
Direct obligations | $ | 10,340 | $ | 126 | $ | 10,214 | $ | 12,201 | $ | 82 | $ | 12,119 | ||||||||||||||||||||
Mortgage-backed securities | 11,387 | $ | 5 | 254 | 11,138 | 9,178 | $ | 23 | 54 | 9,147 | ||||||||||||||||||||||
Asset-backed securities | 23,892 | 13 | 63 | 23,842 | 10,071 | 10 | 25 | 10,056 | ||||||||||||||||||||||||
Collateralized mortgage obligations | 5,598 | 1 | 72 | 5,527 | 1,729 | 1 | 11 | 1,719 | ||||||||||||||||||||||||
State and political subdivisions | 1,864 | 12 | 8 | 1,868 | 1,763 | 24 | 2 | 1,785 | ||||||||||||||||||||||||
Other debt investments | 1,703 | 1 | 9 | 1,695 | 918 | 4 | – | 922 | ||||||||||||||||||||||||
Money-market mutual funds | 232 | – | – | 232 | 97 | – | – | 97 | ||||||||||||||||||||||||
Other equity securities | 438 | 27 | 2 | 463 | 310 | 17 | 1 | 326 | ||||||||||||||||||||||||
Total | $ | 55,454 | $ | 59 | $ | 534 | $ | 54,979 | $ | 36,267 | $ | 79 | $ | 175 | $ | 36,171 | ||||||||||||||||
Held to Maturity: | ||||||||||||||||||||||||||||||||
U.S. Treasury and federal agencies: | ||||||||||||||||||||||||||||||||
Direct obligations | $ | 1,657 | – | $ | 21 | $ | 1,636 | $ | 1,294 | – | $ | 11 | $ | 1,283 | ||||||||||||||||||
Mortgage-backed securities | 925 | – | 14 | 911 | – | – | – | – | ||||||||||||||||||||||||
Collateralized mortgage obligations | 2,086 | – | 40 | 2,046 | – | – | – | – | ||||||||||||||||||||||||
Other investments | 223 | – | 1 | 222 | 106 | – | – | 106 | ||||||||||||||||||||||||
Total | $ | 4,891 | – | $ | 76 | $ | 4,815 | $ | 1,400 | – | $ | 11 | $ | 1,389 | ||||||||||||||||||
Less than 12 continuous months | 12 continuous months or longer | Total | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
U.S. Treasury and federal agencies: | ||||||||||||||||||||||||
Direct obligations | $ | 3,449 | $ | 21 | $ | 8,386 | $ | 126 | $ | 11,835 | $ | 147 | ||||||||||||
Mortgage-backed securities | 40 | — | 12,009 | 268 | 12,049 | 268 | ||||||||||||||||||
Asset-backed securities | 1,852 | 5 | 21,731 | 58 | 23,583 | 63 | ||||||||||||||||||
Collateralized mortgage obligations | 97 | 2 | 7,421 | 110 | 7,518 | 112 | ||||||||||||||||||
State and political subdivisions | 354 | 2 | 1,022 | 6 | 1,376 | 8 | ||||||||||||||||||
Other debt investments | 512 | — | 1,138 | 10 | 1,650 | 10 | ||||||||||||||||||
Other equity securities | 5 | 2 | 4 | — | 9 | 2 | ||||||||||||||||||
Total | $ | 6,309 | $ | 32 | $ | 51,711 | $ | 578 | $ | 58,020 | $ | 610 | ||||||||||||
2005 | 2004 | 2003 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | ||||||||||||||
Gross gains | $ | 9 | $ | 49 | $ | 56 | ||||||||
Gross losses | 10 | 23 | 33 | |||||||||||
Net (losses) gains | $ | (1 | ) | $ | 26 | $ | 23 | |||||||
Under 1 | 1 to 5 | 6 to 10 | Over 10 | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Year | Years | Years | Years | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Available for Sale: | ||||||||||||||||
U.S. Treasury and federal agencies: | ||||||||||||||||
Direct obligations | $ | 2,614 | $ | 7,103 | $ | 497 | ||||||||||
Mortgage-backed securities | 40 | 1,107 | 5,154 | $ | 4,837 | |||||||||||
Asset-backed securities | 1,818 | 9,373 | 9,309 | 3,342 | ||||||||||||
Collateralized mortgage obligations | 97 | 1,948 | 2,404 | 1,078 | ||||||||||||
State and political subdivisions | 321 | 783 | 627 | 137 | ||||||||||||
Other investments | 685 | 613 | 389 | 8 | ||||||||||||
Total | $ | 5,575 | $ | 20,927 | $ | 18,380 | $ | 9,402 | ||||||||
Held to Maturity: | ||||||||||||||||
U.S. Treasury and federal agencies: | ||||||||||||||||
Direct obligations | $ | 856 | $ | 801 | ||||||||||||
Mortgage-backed securities | — | — | $ | 226 | $ | 699 | ||||||||||
Collateralized mortgage obligations | — | 354 | 1,007 | 725 | ||||||||||||
Other investments | 73 | 65 | 81 | 4 | ||||||||||||
Total | $ | 929 | $ | 1,220 | $ | 1,314 | $ | 1,428 | ||||||||
2005 | 2004 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | ||||||||||
Commercial and Financial: | ||||||||||
U.S. | $ | 2,298 | $ | 1,826 | ||||||
Non-U.S. | 1,854 | 526 | ||||||||
Lease Financing: | ||||||||||
U.S. | 404 | 373 | ||||||||
Non-U.S. | 1,926 | 1,904 | ||||||||
Total loans | 6,482 | 4,629 | ||||||||
Less allowance for loan losses | (18 | ) | (18 | ) | ||||||
Net loans | $ | 6,464 | $ | 4,611 | ||||||
2005 | 2004 | 2003 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | ||||||||||||||
Balance at beginning of year | $ | 18 | $ | 61 | $ | 61 | ||||||||
Provision for loan losses | – | (18 | ) | – | ||||||||||
Reclassification | – | (25 | ) | – | ||||||||||
Balance at end of year | $ | 18 | $ | 18 | $ | 61 | ||||||||
Investment Servicing | Investment Management | Total | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | ||||||||||||||
Balance at December 31, 2003 | $ | 1,157 | $ | 212 | $ | 1,369 | ||||||||
Goodwill acquired: | ||||||||||||||
2004 acquisitions | 10 | 2 | 12 | |||||||||||
Purchase price adjustments from prior period acquisitions | 72 | – | 72 | |||||||||||
Translation adjustments | 45 | (1 | ) | 44 | ||||||||||
Balance at December 31, 2004 | 1,284 | 213 | 1,497 | |||||||||||
Purchase price adjustments from prior period acquisitions | 42 | 1 | 43 | |||||||||||
Write-off of Bel Air goodwill | – | (144 | ) | (144 | ) | |||||||||
Reclassification of Bel Air goodwill | 62 | (62 | ) | – | ||||||||||
Translation adjustments | (58 | ) | (1 | ) | (59 | ) | ||||||||
Balance at December 31, 2005 | $ | 1,330 | $ | 7 | $ | 1,337 | ||||||||
2005 | 2004 | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Customer lists | $ | 529 | $ | (118 | ) | $ | 411 | $ | 553 | $ | (86 | ) | $ | 467 | ||||||||||
Pension unrecognized prior service costs | 20 | – | 20 | 17 | – | 17 | ||||||||||||||||||
Other | 33 | (5 | ) | 28 | 11 | (1 | ) | 10 | ||||||||||||||||
Total | $ | 582 | $ | (123 | ) | $ | 459 | $ | 581 | $ | (87 | ) | $ | 494 | ||||||||||
(Dollars in millions) | ||||||
---|---|---|---|---|---|---|
2006 | $ | 17,375 | ||||
2007 | 301 | |||||
2008 | – | |||||
2009 | 158 | |||||
2010 | – | |||||
After 2010 | 6 | |||||
Total | $ | 17,840 | ||||
(Dollars in millions) | |||||
---|---|---|---|---|---|
3 months or less | $ | 7,886 | |||
4 months to a year | 1,191 | ||||
Over one year | 465 | ||||
Total | $ | 9,542 | |||
Federal Funds Purchased | Securities Sold Under Repurchase Agreements | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Balance at December 31, | $ | 1,204 | $ | 435 | $ | 1,019 | $ | 20,895 | $ | 21,881 | $ | 22,806 | ||||||||||||
Maximum outstanding at any month end | 3,982 | 5,500 | 4,690 | 24,690 | 26,773 | 28,579 | ||||||||||||||||||
Average outstanding during the year | 2,306 | 2,891 | 2,901 | 22,432 | 22,989 | 22,724 | ||||||||||||||||||
Weighted average interest rate at end of year | 4.08 | % | 1.75 | % | 1.00 | % | 3.79 | % | 1.64 | % | .73 | % | ||||||||||||
Weighted average interest rate during the year | 3.23 | 1.40 | 1.13 | 2.73 | 1.02 | .90 | ||||||||||||||||||
(Dollars in millions) | |||||
---|---|---|---|---|---|
Collateralized with securities purchased under resale agreements | $ | 7,850 | |||
Collateralized with available-for-sale investment securities | 13,045 | ||||
Total | $ | 20,895 | |||
U.S. Government Securities Sold | Repurchase Agreements | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Amortized Cost | Fair Value | Amortized Cost | Rate | |||||||||||||||
(Dollars in millions) | ||||||||||||||||||
Overnight maturity | $ | 13,428 | $ | 13,188 | $ | 13,045 | 3.79 | % | ||||||||||
2005 | 2004 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | ||||||||||
Statutory Business Trusts: | ||||||||||
8.035% Subordinated notes due to State Street Capital Trust B in 2027(1) | $ | 322 | $ | 335 | ||||||
7.94% Subordinated notes due to State Street Capital Trust A in 2026(1) | 210 | 218 | ||||||||
Floating Rate Subordinated notes due to State Street Capital Trust I in 2028(2) | 154 | 154 | ||||||||
Floating Rate Subordinated notes due to State Street Capital Trust II in 2008 | – | 356 | ||||||||
Parent Company and Non-Bank Subsidiary Issuances: | ||||||||||
Long-term capital lease | 515 | 518 | ||||||||
7.65% Subordinated notes due 2010(1) | 295 | 306 | ||||||||
7.35% Subordinated notes due 2026 | 150 | 150 | ||||||||
9.50% Mortgage note due 2009 | 9 | 11 | ||||||||
State Street Bank Issuances: | ||||||||||
5.25% Subordinated notes due 2018(1) | 405 | 410 | ||||||||
5.30% Subordinated notes due 2016 | 399 | – | ||||||||
Floating Rate Subordinated notes Due 2015(2) | 200 | – | ||||||||
Total long-term debt | $ | 2,659 | $ | 2,458 | ||||||
(1) | We have entered into various interest-rate swap contracts to modify our interest expense on certain subordinated notes from a fixed rate to a floating rate. These swaps are recorded as fair value hedges, and at December 31, 2005 and 2004, we recorded increases in the carrying value of long-term debt outstanding of $18 million and $55 million, respectively. |
(2) | We have entered into interest-rate swaps that are recorded as cash flow hedges to modify our floating-rate interest expense on the subordinated notes due 2028 and 2015 to a fixed rate. |
2005 | 2004 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | ||||||||||
Indemnified securities financing | $ | 372,863 | $ | 349,543 | ||||||
Liquidity asset purchase agreements | 24,412 | 20,410 | ||||||||
Unfunded commitments to extend credit | 14,403 | 12,731 | ||||||||
Standby letters of credit | 5,027 | 4,784 | ||||||||
2005 | 2004 | 2003 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | ||||||||||||||
Foreign currency translation | $ | 73 | $ | 213 | $ | 128 | ||||||||
Unrealized gain (loss) on hedge of net foreign investment in subsidiaries | 11 | (26 | ) | – | ||||||||||
Unrealized (loss) gain on available-for-sale securities | (285 | ) | (56 | ) | 74 | |||||||||
Minimum pension liability | (26 | ) | (26 | ) | – | |||||||||
Unrealized loss on cash flow hedges | (4 | ) | (13 | ) | (10 | ) | ||||||||
Total | $ | (231 | ) | $ | 92 | $ | 192 | |||||||
STOCK OPTIONS | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Option Price Per Share | Weighted Average Option Price | Shares | ||||||||||||
(Shares in thousands) | ||||||||||||||
December 31, 2002 | $ | 1.75–60.74 | $40.35 | 26,314 | ||||||||||
Granted | 37.57–49.84 | 46.20 | 5,672 | |||||||||||
Exercised | 1.75–44.02 | 26.76 | (1,765 | ) | ||||||||||
Canceled | 8.13–60.74 | 48.39 | (655 | ) | ||||||||||
December 31, 2003 | 1.75–60.74 | 42.13 | 29,566 | |||||||||||
Granted | 45.18–52.96 | 52.44 | 2,369 | |||||||||||
Exercised | 1.75–57.29 | 24.29 | (1,897 | ) | ||||||||||
Canceled | 8.13–60.74 | 48.64 | (1,555 | ) | ||||||||||
December 31, 2004 | 5.61–60.74 | 43.82 | 28,483 | |||||||||||
Granted | 44.53–49.12 | 44.73 | 1,292 | |||||||||||
Exercised | 5.61–53.05 | 35.49 | (3,690 | ) | ||||||||||
Canceled | 8.13–60.74 | 49.97 | (2,129 | ) | ||||||||||
December 31, 2005 | 5.61–60.74 | 44.60 | 23,956 | |||||||||||
RANGE OF EXERCISE PRICES | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shares Outstanding | Shares Exercisable | |||||||||||||||||||||
Number of Shares Outstanding | Weighted Average Remaining Contractual Life (years) | Weighted Average Exercise Price | Number of Shares Exercisable | Weighted Average Exercise Price | ||||||||||||||||||
(Shares in thousands) | ||||||||||||||||||||||
$5.61–28.16 | 821 | 1.3 | $ | 23.24 | 821 | $ | 23.24 | |||||||||||||||
32.23–39.95 | 7,233 | 5.5 | 38.01 | 6,948 | 37.95 | |||||||||||||||||
40.22–49.81 | 9,448 | 7.1 | 45.02 | 4,521 | 44.33 | |||||||||||||||||
51.10–60.74 | 6,454 | 6.0 | 54.07 | 4,612 | 54.59 | |||||||||||||||||
5.61–60.74 | 23,956 | 6.1 | 44.60 | 16,902 | 43.48 | |||||||||||||||||
Regulatory Guidelines(1) | State Street | State Street Bank | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Minimum | Well Capitalized | 2005 | 2004 | 2005 | 2004 | ||||||||||||||||||||
(Dollars in millions) | |||||||||||||||||||||||||
Risk-Based Ratios: | |||||||||||||||||||||||||
Tier 1 capital | 4 | % | 6 | % | 11.7 | % | 13.3 | % | 10.3 | % | 11.6 | % | |||||||||||||
Total capital | 8 | 10 | 14.0 | 14.7 | 12.5 | 12.5 | |||||||||||||||||||
Tier 1 leverage ratio | 4 | 5 | 5.6 | 5.5 | 5.4 | 5.3 | |||||||||||||||||||
Shareholders’ equity | $ | 6,367 | $ | 6,159 | $ | 6,139 | $ | 6,262 | |||||||||||||||||
Capital securities | 650 | 995 | – | – | |||||||||||||||||||||
Unrealized losses on available-for-sale securities | 285 | 56 | 292 | 63 | |||||||||||||||||||||
Unrealized losses (gains) on cash flow hedges | 4 | 13 | (10 | ) | (1 | ) | |||||||||||||||||||
Qualifying minority interest in consolidated subsidiaries | 2 | 3 | 2 | 3 | |||||||||||||||||||||
Less: | |||||||||||||||||||||||||
Goodwill | 1,337 | 1,497 | 1,247 | 1,408 | |||||||||||||||||||||
Other intangible assets | 459 | 494 | 438 | 492 | |||||||||||||||||||||
Other deductions | 1 | 2 | – | – | |||||||||||||||||||||
Tier 1 capital | 5,511 | 5,233 | 4,738 | 4,426 | |||||||||||||||||||||
Qualifying subordinated debt | 1,238 | 698 | 998 | 399 | |||||||||||||||||||||
Allowance for on- and off-balance sheet loan losses | 30 | 30 | 30 | 30 | |||||||||||||||||||||
Unrealized gains on available-for-sale equity securities | 12 | 7 | 6 | 2 | |||||||||||||||||||||
Tier 2 capital | 1,280 | 735 | 1,034 | 431 | |||||||||||||||||||||
Deduction for investments in finance subsidiaries | (174 | ) | (165 | ) | (52 | ) | (62 | ) | |||||||||||||||||
Total capital | $ | 6,617 | $ | 5,803 | $ | 5,720 | $ | 4,795 | |||||||||||||||||
Adjusted risk-weighted assets and market-risk equivalents: | |||||||||||||||||||||||||
On-balance sheet | $ | 27,288 | $ | 22,714 | $ | 25,965 | $ | 21,560 | |||||||||||||||||
Off-balance sheet | 19,586 | 16,398 | 19,602 | 16,403 | |||||||||||||||||||||
Market-risk equivalents | 361 | 288 | 351 | 253 | |||||||||||||||||||||
Total | $ | 47,235 | $ | 39,400 | $ | 45,918 | $ | 38,216 | |||||||||||||||||
Quarterly adjusted average assets | $ | 98,970 | $ | 94,834 | $ | 87,667 | $ | 83,843 | |||||||||||||||||
(1) | State Street Bank must meet the regulatory designation of “well capitalized” in order to maintain our status as a financial holding company, including maintaining a minimum Tier 1 risk-based capital ratio (Tier 1 capital divided by total adjusted risk-weighted assets and market-risk equivalents) of 6%, a minimum total risk-based capital ratio (total capital divided by total adjusted risk-weighted assets and market-risk equivalents) of 10%, and a Tier 1 leverage ratio (Tier 1 capital divided by quarterly adjusted average assets) of 5%. In addition, Federal Reserve Regulation Y defines “well capitalized” for a bank holding company such as us for the purpose of determining eligibility for a streamlined review process for acquisition proposals. For such Regulation Y purposes, “well capitalized” requires us to maintain a minimum Tier 1 risk-based capital ratio of 6% and a minimum total risk-based capital ratio of 10%. |
2005 | 2004 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | ||||||||||
Trading: | ||||||||||
Interest-rate contracts: | ||||||||||
Swap agreements | $ | 4,508 | $ | 1,450 | ||||||
Options and caps purchased | 912 | 310 | ||||||||
Options and caps written | 2,564 | 1,464 | ||||||||
Futures | 534 | 1,767 | ||||||||
Foreign exchange contracts: | ||||||||||
Forward, swap and spot | 414,376 | 364,357 | ||||||||
Options purchased | 6,624 | 3,298 | ||||||||
Options written | 6,763 | 3,214 | ||||||||
Asset and Liability Management: | ||||||||||
Interest-rate contracts: | ||||||||||
Swap agreements | 5,369 | 4,300 | ||||||||
Foreign exchange contracts: | ||||||||||
Swap agreements | 355 | 407 | ||||||||
2005 | 2004 | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fair Value Hedges | Cash Flow Hedges | Total | Fair Value Hedges | Cash Flow Hedges | Total | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Available-for-sale investment securities | $ | 2,211 | $ | 2,211 | $ | 1,515 | $ | 1,515 | ||||||||||||||||
Interest-bearing time deposits(1) | 118 | $ | 1,490 | 1,608 | 245 | $ | 1,190 | 1,435 | ||||||||||||||||
Long-term debt(2)(3) | 1,200 | 350 | 1,550 | 1,200 | 150 | 1,350 | ||||||||||||||||||
Total | $ | 3,529 | $ | 1,840 | $ | 5,369 | $ | 2,960 | $ | 1,340 | $ | 4,300 | ||||||||||||
(1) | For the years ended December 31, 2005 and 2004, the overall weighted-average interest rate for interest-bearing time deposits was 3.23% and 1.38%, respectively, on a contractual basis, and 3.19% and 1.35%, respectively, including the effects of hedges. |
(2) | For the years ended December 31, 2005 and 2004, the fair value hedges of long-term debt increased the carrying value of long-term debt presented in our consolidated statement of condition by $18 million and $55 million, respectively. |
(3) | For the years ended December 31, 2005 and 2004, the overall weighted-average interest rate for long-term debt was 6.58% and 6.30%, respectively, on a contractual basis, and 5.63% and 4.36%, respectively, including the effects of hedges. |
2005 | 2004 | 2003 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | ||||||||||||||
Interest Revenue: | ||||||||||||||
Deposits with banks | $ | 529 | $ | 591 | $ | 474 | ||||||||
Investment securities: | ||||||||||||||
U.S. Treasury and federal agencies | 866 | 536 | 409 | |||||||||||
State and political subdivisions (exempt from federal tax) | 58 | 57 | 62 | |||||||||||
Other investments | 873 | 277 | 259 | |||||||||||
Securities purchased under resale agreements and federal funds sold | 412 | 196 | 168 | |||||||||||
Commercial and financial loans | 106 | 59 | 61 | |||||||||||
Lease financing | 65 | 57 | 87 | |||||||||||
Trading account assets | 21 | 14 | 19 | |||||||||||
Total interest revenue | 2,930 | 1,787 | 1,539 | |||||||||||
Interest Expense: | ||||||||||||||
Deposits | 1,132 | 512 | 372 | |||||||||||
Other short-term borrowings | 753 | 315 | 279 | |||||||||||
Long-term debt | 138 | 101 | 78 | |||||||||||
Total interest expense | 2,023 | 928 | 729 | |||||||||||
Net interest revenue | $ | 907 | $ | 859 | $ | 810 | ||||||||
Primary U.S. and Non-U.S. Defined Benefit Plans | Post-Retirement Plan | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | 2005 | 2004 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Benefit Obligations: | ||||||||||||||||
Beginning of year | $ | 650 | $ | 587 | $ | 72 | $ | 65 | ||||||||
Service cost | 50 | 41 | 4 | 3 | ||||||||||||
Interest cost | 35 | 32 | 4 | 4 | ||||||||||||
Transfers in | 27 | – | – | – | ||||||||||||
Actuarial losses | 62 | 21 | 4 | 4 | ||||||||||||
Benefits paid | (45 | ) | (44 | ) | (5 | ) | (4 | ) | ||||||||
Expenses paid | (2 | ) | – | – | – | |||||||||||
Special termination benefits | 1 | – | – | – | ||||||||||||
Foreign currency translation | (19 | ) | 13 | – | – | |||||||||||
End of year | $ | 759 | $ | 650 | $ | 79 | $ | 72 | ||||||||
Plan Assets at Fair Value: | ||||||||||||||||
Beginning of year | $ | 592 | $ | 512 | ||||||||||||
Actual return on plan assets | 63 | 59 | ||||||||||||||
Employer contributions | 98 | 57 | ||||||||||||||
Transfers in | 13 | – | ||||||||||||||
Benefits paid | (45 | ) | (44 | ) | ||||||||||||
Expenses paid | (2 | ) | – | |||||||||||||
Foreign currency translation | (13 | ) | 8 | |||||||||||||
End of year | $ | 706 | $ | 592 | ||||||||||||
Accrued Benefit Expense: | ||||||||||||||||
Underfunded status of the plans — liability | $ | 53 | $ | 58 | $ | 79 | $ | 72 | ||||||||
Unrecognized net asset (obligation) at transition | – | 1 | (6 | ) | (7 | ) | ||||||||||
Unrecognized net losses | (263 | ) | (241 | ) | (22 | ) | (18 | ) | ||||||||
Unrecognized prior service benefits (costs) | 23 | 25 | – | – | ||||||||||||
Net (prepaid) accrued benefit expense | $ | (187 | ) | $ | (157 | ) | $ | 51 | $ | 47 | ||||||
Primary U.S. and Non-U.S. Defined Benefit Plans | Post-Retirement Plan | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | 2005 | 2004 | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Amounts Recognized in the Consolidated Statement of Condition: | ||||||||||||||||
As of December 31: | ||||||||||||||||
Prepaid benefit cost | $ | (183 | ) | $ | (170 | ) | ||||||||||
Accrued benefit cost | 26 | 45 | $ | 51 | $ | 47 | ||||||||||
Intangible assets | – | (1 | ) | – | – | |||||||||||
Other | (30 | ) | (31 | ) | – | – | ||||||||||
Net (prepaid) accrued benefit expense | $ | (187 | ) | $ | (157 | ) | $ | 51 | $ | 47 | ||||||
Decrease in minimum liability | $ | – | $ | (2 | ) | $ | – | $ | – | |||||||
Actuarial Assumptions (U.S. Plans): | ||||||||||||||||
Used to determine benefit obligations as of December 31: | ||||||||||||||||
Discount rate | 5.50 | % | 5.75 | % | 5.50 | % | 5.75 | % | ||||||||
Rate of increase for future compensation | 4.50 | 4.50 | – | – | ||||||||||||
Used to determine periodic benefit cost for the years ended December 31: | ||||||||||||||||
Discount rate | 5.75 | % | 6.00 | % | 5.75 | % | 6.00 | % | ||||||||
Rate of increase for future compensation | 4.50 | 4.50 | – | – | ||||||||||||
Expected long-term rate of return on plan assets | 8.00 | 8.00 | – | – | ||||||||||||
Assumed health care cost trend rates as of December 31: | ||||||||||||||||
Cost trend rate assumed for next year | – | – | 11.00 | % | 12.00 | % | ||||||||||
Rate to which the cost trend rate is assumed to decline | – | – | 5.00 | 5.00 | ||||||||||||
Year that the rate reaches the ultimate trend rate | – | – | 2013 | 2013 | ||||||||||||
Primary U.S. and Non-U.S. Defined Benefit Plans | Non-Qualified SERPs | Post-Retirement Plan | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | ||||||||||||||
2006 | $ | 46 | $ | 7 | $ | 6 | ||||||||
2007 | 38 | 7 | 5 | |||||||||||
2008 | 27 | 5 | 5 | |||||||||||
2009 | 24 | 4 | 4 | |||||||||||
2010 | 22 | 5 | 4 | |||||||||||
2011–2015 | 131 | 31 | 15 | |||||||||||
ASSET CATEGORY | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Strategic Target Allocation | Percentage of Plan Assets at December 31, | |||||||||||||
2006 | 2005 | 2004 | ||||||||||||
Equity securities | 55 | % | 59 | % | 59 | % | ||||||||
Fixed income securities | 30 | 29 | 30 | |||||||||||
Other | 15 | 12 | 11 | |||||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||||
Non-Qualified SERPs | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | |||||||||
(Dollars in millions) | ||||||||||
Benefit Obligations: | ||||||||||
Beginning of year | $ | 99 | $ | 91 | ||||||
Service cost | 4 | 5 | ||||||||
Interest cost | 5 | 6 | ||||||||
Actuarial loss | 11 | 7 | ||||||||
Benefits paid | (8 | ) | (10 | ) | ||||||
Settlements | (8 | ) | (9 | ) | ||||||
Amendments | 4 | 9 | ||||||||
End of year | $ | 107 | $ | 99 | ||||||
Accrued Benefit Expense: | ||||||||||
Underfunded status of the plans | $ | 107 | $ | 99 | ||||||
Unrecognized net loss | (39 | ) | (33 | ) | ||||||
Unrecognized prior service cost | (17 | ) | (14 | ) | ||||||
Net accrued benefit expense | $ | 51 | $ | 52 | ||||||
Amounts Recognized in the Consolidated Statement of Condition: | ||||||||||
Accrued benefit cost | $ | 78 | $ | 71 | ||||||
Intangible assets | (20 | ) | (16 | ) | ||||||
Other | (7 | ) | (3 | ) | ||||||
Net accrued benefit expense | $ | 51 | $ | 52 | ||||||
Decrease in minimum liability | $ | (5 | ) | $ | (2 | ) | ||||
Accumulated benefit obligation | $ | 78 | $ | 71 | ||||||
Actuarial assumptions used to determine benefit obligations and periodic benefit costs are consistent with those noted for the post-retirement plan, with the following exception: | ||||||||||
Rate of increase for future compensation | 4.75 | % | 4.75 | % | ||||||
Primary U.S. and Non-U.S. Defined Benefit Plans | Post-Retirement Plan | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Components of Net Periodic Benefit Cost: | ||||||||||||||||||||||||
Service cost | $ | 50 | $ | 41 | $ | 39 | $ | 3 | $ | 3 | $ | 3 | ||||||||||||
Interest cost | 35 | 32 | 30 | 4 | 4 | 3 | ||||||||||||||||||
Assumed return on plan assets | (45 | ) | (40 | ) | (35 | ) | – | – | – | |||||||||||||||
Amortization of transition obligation (asset) | – | (1 | ) | (2 | ) | 1 | 1 | 1 | ||||||||||||||||
Amortization of prior service cost | (2 | ) | (2 | ) | – | – | – | – | ||||||||||||||||
Amortization of net loss (gain) | 15 | 16 | 12 | 1 | 1 | 1 | ||||||||||||||||||
Net periodic benefit cost | 53 | 46 | 44 | 9 | 9 | 8 | ||||||||||||||||||
Special Events Accounting Expense: | ||||||||||||||||||||||||
Curtailments | – | – | 3 | – | – | 7 | ||||||||||||||||||
Special termination benefits | 1 | – | 51 | – | – | 6 | ||||||||||||||||||
Special events accounting expense | 1 | – | 54 | – | – | 13 | ||||||||||||||||||
Total expense | $ | 54 | $ | 46 | $ | 98 | $ | 9 | $ | 9 | $ | 21 | ||||||||||||
Non-Qualified SERPs | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | 2003 | ||||||||||||
(Dollars in millions) | ||||||||||||||
Components of Net Periodic Benefit Cost: | ||||||||||||||
Service cost | $ | 4 | $ | 5 | $ | 4 | ||||||||
Interest cost | 5 | 6 | 5 | |||||||||||
Amortization of prior service cost | 2 | 1 | 2 | |||||||||||
Amortization of net loss | 2 | 2 | 2 | |||||||||||
Net periodic benefit cost | 13 | 14 | 13 | |||||||||||
Special Events Accounting Expense: | ||||||||||||||
Settlements | 2 | 1 | 1 | |||||||||||
Curtailments | – | – | 2 | |||||||||||
Special termination benefits | – | – | 23 | |||||||||||
Special events accounting expense | 2 | 1 | 26 | |||||||||||
Total expense | $ | 15 | $ | 15 | $ | 39 | ||||||||
Capital Leases | Operating Leases | Total | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | ||||||||||||||
2006 | $ | 51 | $ | 180 | $ | 231 | ||||||||
2007 | 51 | 157 | 208 | |||||||||||
2008 | 52 | 135 | 187 | |||||||||||
2009 | 52 | 121 | 173 | |||||||||||
2010 | 52 | 106 | 158 | |||||||||||
Thereafter | 667 | 468 | 1,135 | |||||||||||
Total minimum lease payments | 925 | $ | 1,167 | $ | 2,092 | |||||||||
Less amount representing interest payments | (410 | ) | ||||||||||||
Present value of minimum lease payments | $ | 515 | ||||||||||||
Restructuring Costs | ||||||
---|---|---|---|---|---|---|
(Dollars in millions) | ||||||
Costs by Category: | ||||||
Severance | $ | 158 | ||||
Pension | 80 | |||||
Stock-based compensation | 36 | |||||
Other | 22 | |||||
Total | $ | 296 | ||||
Costs by Line of Business: | ||||||
Investment Servicing | $ | 262 | ||||
Investment Management | 34 | |||||
Total | $ | 296 | ||||
2005 | 2004 | 2003 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | ||||||||||||||
Professional services | $ | 184 | $ | 165 | $ | 94 | ||||||||
Advertising and sales promotion | 42 | 44 | 40 | |||||||||||
Other | 258 | 222 | 186 | |||||||||||
Total operating expenses — other | $ | 484 | $ | 431 | $ | 320 | ||||||||
2005 | 2004 | 2003 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | ||||||||||||||
Current: | ||||||||||||||
Federal | $ | 197 | $ | 31 | $ | 54 | ||||||||
State | 49 | 27 | 48 | |||||||||||
Non-U.S. | 138 | 157 | 59 | |||||||||||
Total current | 384 | 215 | 161 | |||||||||||
Deferred: | ||||||||||||||
Federal | 72 | 160 | 168 | |||||||||||
State | 10 | 23 | 35 | |||||||||||
Non-U.S. | 21 | (4 | ) | 26 | ||||||||||
Total deferred | 103 | 179 | 229 | |||||||||||
Total income tax expense from continuing operations | $ | 487 | $ | 394 | $ | 390 | ||||||||
2005 | 2004 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | ||||||||||
Deferred Tax Liabilities: | ||||||||||
Lease financing transactions | $ | 1,735 | $ | 1,653 | ||||||
Foreign currency translation | 34 | 89 | ||||||||
Pension | 53 | 51 | ||||||||
Other | 40 | 53 | ||||||||
Operating expenses | 20 | 1 | ||||||||
Total deferred tax liabilities | 1,882 | 1,847 | ||||||||
Deferred Tax Assets: | ||||||||||
Unrealized losses on available-for-sale securities, net | 190 | 40 | ||||||||
Deferred compensation | 70 | 61 | ||||||||
Unrealized loss related to discontinued operations | 58 | – | ||||||||
Allowance for loan losses | 11 | 11 | ||||||||
Tax carryforwards | 1 | 69 | ||||||||
Other | 44 | 76 | ||||||||
Total deferred tax assets | 374 | 257 | ||||||||
Valuation allowance for deferred tax assets | 1 | 1 | ||||||||
Net deferred tax assets | 373 | 256 | ||||||||
Net deferred tax liabilities | $ | 1,509 | $ | 1,591 | ||||||
2005 | 2004 | 2003 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
U.S. federal income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||||
Changes from Statutory Rate: | ||||||||||||||
State taxes, net of federal benefit | 3.3 | 3.7 | 3.8 | |||||||||||
Tax-exempt interest revenue, net of disallowed interest | (1.5 | ) | (2.2 | ) | (2.6 | ) | ||||||||
Tax credits | (1.3 | ) | (.6 | ) | (.9 | ) | ||||||||
Foreign tax differential | (1.0 | ) | (1.1 | ) | (.8 | ) | ||||||||
Leveraged lease transactions — cumulative benefit | – | (.9 | ) | – | ||||||||||
Other, net | (.5 | ) | (.8 | ) | (.5 | ) | ||||||||
Non-operating item(1) | – | – | 1.1 | |||||||||||
Effective tax rate | 34.0 | % | 33.1 | % | 35.1 | % | ||||||||
(1) | The non-operating item reported in 2003 related to an increase in the effective tax rate for a state tax matter that was settled. |
2005 | 2004 | 2003 | |||||||
---|---|---|---|---|---|---|---|---|---|
(Dollars in millions, except per share amounts) | |||||||||
Net Income | $ | 838 | $ | 798 | $ | 722 | |||
Average Shares Outstanding (in thousands): | |||||||||
Basic average shares | 330,361 | 334,606 | 331,692 | ||||||
Effect of dilutive securities: | |||||||||
Stock options and stock awards | 2,762 | 3,358 | 2,938 | ||||||
Equity-related financial instruments | 1,513 | 1,641 | 696 | ||||||
Dilutive average shares | 334,636 | 339,605 | 335,326 | ||||||
Anti-dilutive securities (in thousands)(1) | 8,791 | 10,289 | 13,216 | ||||||
Earnings per Share: | |||||||||
Basic | $ | 2.53 | $ | 2.38 | $ | 2.18 | |||
Diluted | 2.50 | 2.35 | 2.15 | ||||||
(1) | Represents stock options outstanding but not included in the computation of diluted average shares because the exercise prices of the instruments were greater than the average fair value of our common stock during those periods. |
Investment Servicing | Investment Management | Business Divestiture | Other/One-Time | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||||||||||||||||||||||||||||||
(Dollars in millions, unless otherwise noted) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Years ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fee revenue: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Servicing fees | $ | 2,474 | $ | 2,263 | $ | 1,950 | $ | 2,474 | $ | 2,263 | $ | 1,950 | |||||||||||||||||||||||||||||||||||||||||||||
Management fees | – | – | – | $ | 751 | $ | 623 | $ | 474 | $ | 59 | 751 | 623 | 533 | |||||||||||||||||||||||||||||||||||||||||||
Trading services | 694 | 595 | 529 | – | – | – | – | 694 | 595 | 529 | |||||||||||||||||||||||||||||||||||||||||||||||
Securities finance | 260 | 211 | 206 | 70 | 48 | 39 | – | 330 | 259 | 245 | |||||||||||||||||||||||||||||||||||||||||||||||
Processing fees and other | 221 | 239 | 277 | 81 | 69 | 34 | 1 | $ | (13 | ) | 302 | 308 | 299 | ||||||||||||||||||||||||||||||||||||||||||||
Total fee revenue | 3,649 | 3,308 | 2,962 | 902 | 740 | 547 | 60 | (13 | ) | 4,551 | 4,048 | 3,556 | |||||||||||||||||||||||||||||||||||||||||||||
Net interest revenue | 826 | 816 | 773 | 81 | 43 | 37 | – | – | 907 | 859 | 810 | ||||||||||||||||||||||||||||||||||||||||||||||
Provision for loan losses | – | (18 | ) | – | – | – | – | – | – | – | (18 | ) | – | ||||||||||||||||||||||||||||||||||||||||||||
Net interest revenue after provision for loan losses | 826 | 834 | 773 | 81 | 43 | 37 | – | – | 907 | 877 | 810 | ||||||||||||||||||||||||||||||||||||||||||||||
(Losses) gains on sales of available-for-sale investment securities, net | (1 | ) | 26 | 23 | – | – | – | – | – | (1 | ) | 26 | 23 | ||||||||||||||||||||||||||||||||||||||||||||
Gains on the sales of divested businesses, net | – | – | – | – | – | – | – | $ | 16 | 345 | 16 | – | 345 | ||||||||||||||||||||||||||||||||||||||||||||
Total revenue | 4,474 | 4,168 | 3,758 | 983 | 783 | 584 | 60 | 16 | 332 | 5,473 | 4,951 | 4,734 | |||||||||||||||||||||||||||||||||||||||||||||
Operating expenses | 3,363 | 3,115 | 2,706 | 678 | 582 | 473 | 37 | – | $ | 62 | 406 | 4,041 | 3,759 | 3,622 | |||||||||||||||||||||||||||||||||||||||||||
Income from continuing operations before income taxes | $ | 1,111 | $ | 1,053 | $ | 1,052 | $ | 305 | $ | 201 | $ | 111 | $ | 23 | $ | 16 | $ | (62 | ) | $ | (74 | ) | $ | 1,432 | $ | 1,192 | $ | 1,112 | |||||||||||||||||||||||||||||
Pre-tax margin | 25 | % | 25 | % | 28 | % | 31 | % | 26 | % | 19 | % | |||||||||||||||||||||||||||||||||||||||||||||
Average assets (in billions) | $ | 96.9 | $ | 92.5 | $ | 80.6 | $ | 2.9 | $ | 2.6 | $ | 2.0 | $ | .1 | $ | 99.8 | $ | 95.1 | $ | 82.7 | |||||||||||||||||||||||||||||||||||||
2005 | 2004 | 2003 | |||||||
---|---|---|---|---|---|---|---|---|---|
(Dollars in millions) | |||||||||
Results of Operations: | |||||||||
Total fee revenue | $ | 1,881 | $ | 1,549 | $ | 1,111 | |||
Interest revenue | 653 | 660 | 612 | ||||||
Interest expense | 404 | 393 | 288 | ||||||
Net interest revenue | 249 | 267 | 324 | ||||||
Total revenue | 2,130 | 1,816 | 1,435 | ||||||
Operating expenses | 1,589 | 1,309 | 1,045 | ||||||
Income before income taxes | 541 | 507 | 390 | ||||||
Income tax expense | 205 | 191 | 146 | ||||||
Net income | $ | 336 | $ | 316 | $ | 244 | |||
Assets: | |||||||||
Interest-bearing deposits with banks | $ | 11,235 | $ | 20,451 | $ | 21,608 | |||
Other assets | 8,800 | 6,719 | 7,183 | ||||||
Total assets | $ | 20,035 | $ | 27,170 | $ | 28,791 | |||
• | 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 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 derivative financial instruments, fair value is estimated as the amount at which an asset or liability could be bought or sold in a current transaction between willing parties, other than in a forced liquidation or sale. |
Reported Value | Fair Value | |||||
---|---|---|---|---|---|---|
(Dollars in millions) | ||||||
2005: | ||||||
Financial Assets: | ||||||
Investment securities: | ||||||
Available for sale | $ | 54,979 | $ | 54,979 | ||
Held to maturity | 4,891 | 4,815 | ||||
Net loans (excluding leases) | 4,134 | 4,134 | ||||
Unrealized gains on derivative financial instruments — trading | 2,038 | 2,038 | ||||
Unrealized gains on derivative financial instruments — asset and liability management | 76 | 76 | ||||
Financial Liabilities: | ||||||
Long-term debt | 2,659 | 2,775 | ||||
Unrealized losses on derivative financial instruments — trading | 2,042 | 2,042 | ||||
Unrealized losses on derivative financial instruments — asset and liability management | 76 | 76 | ||||
2004: | ||||||
Financial Assets: | ||||||
Investment securities: | ||||||
Available for sale | $ | 36,171 | $ | 36,171 | ||
Held to maturity | 1,400 | 1,389 | ||||
Net loans (excluding leases) | 2,334 | 2,334 | ||||
Unrealized gains on derivative financial instruments — trading | 3,243 | 3,243 | ||||
Unrealized gains on derivative financial instruments — asset and liability management | 70 | 70 | ||||
Financial Liabilities: | ||||||
Long-term debt | 2,458 | 2,588 | ||||
Unrealized losses on derivative financial instruments — trading | 3,131 | 3,131 | ||||
Unrealized losses on derivative financial instruments — asset and liability management | 146 | 146 | ||||
STATEMENT OF INCOME | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | 2003 | ||||||||||||
(Dollars in millions) | ||||||||||||||
Years ended December 31, | ||||||||||||||
Interest on securities purchased under resale agreements | $ | 332 | $ | 140 | $ | 93 | ||||||||
Cash dividends from consolidated bank subsidiary | 570 | 400 | 145 | |||||||||||
Cash dividends from consolidated non-bank subsidiaries and unconsolidated affiliates | 74 | 50 | 52 | |||||||||||
Other, net | 42 | 28 | 33 | |||||||||||
Total revenue | 1,018 | 618 | 323 | |||||||||||
Interest on securities sold under repurchase agreements | 265 | 112 | 75 | |||||||||||
Other interest expense | 131 | 78 | 77 | |||||||||||
Other expenses | 6 | 11 | 12 | |||||||||||
Total expenses | 402 | 201 | 164 | |||||||||||
Income tax expense (benefit) | 33 | 11 | (1 | ) | ||||||||||
Income before equity in undistributed income of subsidiaries and affiliates | 583 | 406 | 160 | |||||||||||
Equity in undistributed income of subsidiaries and affiliates: | ||||||||||||||
Consolidated bank subsidiary | 165 | 338 | 541 | |||||||||||
Consolidated non-bank subsidiaries and unconsolidated affiliates | 90 | 54 | 21 | |||||||||||
Net income | $ | 838 | $ | 798 | $ | 722 | ||||||||
STATEMENT OF CONDITION | ||||||||
---|---|---|---|---|---|---|---|---|
2005 | 2004 | |||||||
(Dollars in millions) | ||||||||
As of December 31, | ||||||||
Assets: | �� | |||||||
Interest-bearing deposits with bank subsidiary | $ | 550 | $ | 1,130 | ||||
Securities purchased under resale agreements from: | ||||||||
External parties | 8,464 | 1,901 | ||||||
Consolidated non-bank subsidiary and unconsolidated affiliates | 615 | 333 | ||||||
Investment securities available for sale | 91 | 101 | ||||||
Investments in subsidiaries: | ||||||||
Consolidated bank subsidiary | 6,139 | 6,262 | ||||||
Consolidated non-bank subsidiaries | 983 | 898 | ||||||
Unconsolidated affiliates | 164 | 158 | ||||||
Notes and other receivables from: | ||||||||
Consolidated bank subsidiary | 19 | 50 | ||||||
Consolidated non-bank subsidiaries and affiliates | 71 | 88 | ||||||
Other assets | 70 | 83 | ||||||
Total assets | $ | 17,166 | $ | 11,004 | ||||
Liabilities: | ||||||||
Securities sold under repurchase agreements | $ | 8,624 | $ | 2,118 | ||||
Commercial paper | 864 | 966 | ||||||
Accrued taxes, expenses and other liabilities due to: | ||||||||
Consolidated bank subsidiary | 33 | 109 | ||||||
Consolidated non-bank subsidiaries | 7 | 10 | ||||||
External parties | 148 | 167 | ||||||
Long-term debt | 1,123 | 1,475 | ||||||
Total liabilities | 10,799 | 4,845 | ||||||
Shareholders’ equity | 6,367 | 6,159 | ||||||
Total liabilities and shareholders’ equity | $ | 17,166 | $ | 11,004 | ||||
STATEMENT OF CASH FLOWS | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 | 2004 | 2003 | ||||||||||
(Dollars in millions) | ||||||||||||
Years ended December 31, | ||||||||||||
Net Cash Provided by Operating Activities | $ | 512 | $ | 412 | $ | 167 | ||||||
Investing Activities: | ||||||||||||
Net decrease (increase) in interest-bearing deposits with bank subsidiary | 580 | (327 | ) | (286 | ) | |||||||
Net (increase) decrease in securities purchased under resale agreements | (6,845 | ) | 5,154 | (1,509 | ) | |||||||
Purchases of available-for-sale securities | (378 | ) | (43 | ) | (23 | ) | ||||||
Sales of available-for-sale securities | 385 | 43 | – | |||||||||
Investments in consolidated bank subsidiary | – | – | (320 | ) | ||||||||
Investments in non-bank subsidiaries and affiliates | (20 | ) | (75 | ) | (272 | ) | ||||||
Net decrease in notes receivable from subsidiaries | 15 | 26 | 56 | |||||||||
Other | 12 | 13 | 12 | |||||||||
Net cash (used) provided by investing activities | (6,251 | ) | 4,791 | (2,342 | ) | |||||||
Financing Activities: | ||||||||||||
Net increase (decrease) in short-term borrowings | 6,506 | (4,914 | ) | 1,755 | ||||||||
Net decrease in commercial paper | (102 | ) | (15 | ) | (17 | ) | ||||||
Proceeds from issuance of long-term debt, net of issuance costs | – | – | 343 | |||||||||
Repayments of long-term debt | (345 | ) | – | (100 | ) | |||||||
Proceeds from SPACES, net of issuance costs | 345 | – | 257 | |||||||||
Purchases of common stock | (664 | ) | (178 | ) | (3 | ) | ||||||
Proceeds from issuance of treasury stock for stock awards and options exercised | 231 | 113 | 119 | |||||||||
Payments for cash dividends | (232 | ) | (209 | ) | (179 | ) | ||||||
Net cash provided (used) by financing activities | 5,739 | (5,203 | ) | 2,175 | ||||||||
Net change | – | – | – | |||||||||
Cash and due from banks at beginning of year | – | – | – | |||||||||
Cash and due from banks at end of year | $ | – | $ | – | $ | – | ||||||
2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Average Balance | Interest | Average Rate | Average Balance | Interest | Average Rate | Average Balance | Interest | Average Rate | ||||||||||||||||||||||||||||
(Dollars in millions; taxable equivalent) | ||||||||||||||||||||||||||||||||||||
Years ended December 31, | ||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||
Interest-bearing deposits with non-U.S. banks | $ | 17,186 | $ | 527 | 3.07 | % | $ | 27,221 | $ | 589 | 2.17 | % | $ | 22,452 | $ | 473 | 2.11 | % | ||||||||||||||||||
Interest-bearing deposits with U.S. banks | 74 | 2 | 2.60 | 167 | 2 | .94 | 86 | 1 | .56 | |||||||||||||||||||||||||||
Securities purchased under resale agreements | 12,579 | 403 | 3.21 | 13,733 | 191 | 1.39 | 13,152 | 164 | 1.25 | |||||||||||||||||||||||||||
Federal funds sold | 311 | 9 | 2.82 | 359 | 5 | 1.29 | 393 | 4 | 1.12 | |||||||||||||||||||||||||||
Trading account assets(2) | 470 | 21 | 4.39 | 614 | 14 | 2.36 | 819 | 19 | 2.37 | |||||||||||||||||||||||||||
Investment securities: | ||||||||||||||||||||||||||||||||||||
U.S. Treasury and federal agencies | 24,833 | 866 | 3.49 | 22,314 | 536 | 2.40 | 19,815 | 409 | 2.06 | |||||||||||||||||||||||||||
State and political subdivisions(2) | 1,839 | 78 | 4.23 | 1,945 | 77 | 3.93 | 1,912 | 86 | 4.47 | |||||||||||||||||||||||||||
Other investments | 24,481 | 873 | 3.56 | 11,834 | 277 | 2.31 | 9,377 | 259 | 2.70 | |||||||||||||||||||||||||||
Commercial and financial loans | 3,718 | 106 | 2.85 | 3,433 | 59 | 1.72 | 3,402 | 61 | 1.79 | |||||||||||||||||||||||||||
Lease financing(2) | 2,295 | 87 | 3.81 | 2,256 | 82 | 3.61 | 2,166 | 114 | 5.26 | |||||||||||||||||||||||||||
Total interest-earning assets(2) | 87,786 | 2,972 | 3.39 | 83,876 | 1,832 | 2.18 | 73,574 | 1,590 | 2.16 | |||||||||||||||||||||||||||
Cash and due from banks | 2,598 | 2,853 | 1,596 | |||||||||||||||||||||||||||||||||
Other assets | 9,385 | 8,413 | 7,503 | |||||||||||||||||||||||||||||||||
Total assets | $ | 99,769 | $ | 95,142 | $ | 82,673 | ||||||||||||||||||||||||||||||
Liabilities and Shareholders’ Equity: | ||||||||||||||||||||||||||||||||||||
Interest-bearing deposits: | ||||||||||||||||||||||||||||||||||||
Time | $ | 2,058 | 66 | 3.19 | $ | 5,352 | 72 | 1.35 | $ | 4,731 | 59 | 1.22 | ||||||||||||||||||||||||
Savings | 934 | 21 | 2.28 | 855 | 6 | .72 | 1,079 | 6 | .57 | |||||||||||||||||||||||||||
Non-U.S. | 46,711 | 1,045 | 2.24 | 39,046 | 434 | 1.11 | 29,746 | 307 | 1.04 | |||||||||||||||||||||||||||
Total interest-bearing deposits | 49,703 | 1,132 | 2.28 | 45,253 | 512 | 1.13 | 35,556 | 372 | 1.05 | |||||||||||||||||||||||||||
Securities sold under repurchase agreements | 22,432 | 613 | 2.73 | 22,989 | 234 | 1.02 | 22,724 | 205 | .90 | |||||||||||||||||||||||||||
Federal funds purchased | 2,306 | 75 | 3.23 | 2,891 | 41 | 1.40 | 2,901 | 33 | 1.13 | |||||||||||||||||||||||||||
Other short-term borrowings | 1,970 | 65 | 3.30 | 1,736 | 40 | 2.28 | 2,031 | 41 | 2.03 | |||||||||||||||||||||||||||
Long-term debt | 2,461 | 138 | 5.63 | 2,319 | 101 | 4.36 | 1,810 | 78 | 4.31 | |||||||||||||||||||||||||||
Total interest-bearing liabilities | 78,872 | 2,023 | 2.57 | 75,188 | 928 | 1.23 | 65,022 | 729 | 1.12 | |||||||||||||||||||||||||||
Noninterest-bearing deposits: | ||||||||||||||||||||||||||||||||||||
Special time | 6,880 | 6,697 | 6,607 | |||||||||||||||||||||||||||||||||
Demand | 1,243 | 1,296 | 717 | |||||||||||||||||||||||||||||||||
Non-U.S.(3) | 170 | 53 | 35 | |||||||||||||||||||||||||||||||||
Other liabilities | 6,426 | 5,900 | 5,090 | |||||||||||||||||||||||||||||||||
Shareholders’ equity | 6,178 | 6,008 | 5,202 | |||||||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 99,769 | $ | 95,142 | $ | 82,673 | ||||||||||||||||||||||||||||||
Net interest revenue | $ | 949 | $ | 904 | $ | 861 | ||||||||||||||||||||||||||||||
Excess of rate earned over rate paid | .82 | % | .95 | % | 1.04 | % | ||||||||||||||||||||||||||||||
Net interest margin(1) | 1.08 | 1.08 | 1.17 | |||||||||||||||||||||||||||||||||
(1) | Net interest margin is taxable-equivalent net interest revenue divided by average interest-earning assets. |
(2) | Taxable-equivalent adjusted revenue is a method of presentation in which the tax savings achieved by investing in tax-exempt securities are included in interest income with a corresponding charge to income tax expense. This method provides better comparability between the performance of tax-exempt and taxable securities. The adjustment is computed using a federal income tax rate of 35%, adjusted for applicable state income taxes, net of the related federal-tax benefit. The taxable-equivalent adjustments included in interest revenue above were $42 million, $45 million and $51 million for the years ended December 31, 2005, 2004 and 2003, respectively. |
(3) | Non-U.S. noninterest-bearing deposits were $122 million, $71 million and $53 million at December 31, 2005, 2004 and 2003, respectively. |
2005 Compared to 2004 | 2004 Compared to 2003 | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Change in Volume | Change in Rate | Net (Decrease) Increase | Change in Volume | Change in Rate | Net Increase (Decrease) | |||||||||||||||||||
(Dollars in millions; taxable equivalent) | ||||||||||||||||||||||||
Years ended December 31, | ||||||||||||||||||||||||
Interest Revenue Related to: | ||||||||||||||||||||||||
Interest-bearing deposits with non-U.S. banks | $ | (219 | ) | $ | 157 | $ | (62 | ) | $ | 100 | $ | 16 | $ | 116 | ||||||||||
Interest-bearing deposits with U.S. banks | – | – | – | 1 | – | 1 | ||||||||||||||||||
Securities purchased under resale agreements | (16 | ) | 228 | 212 | 7 | 20 | 27 | |||||||||||||||||
Federal funds sold | (1 | ) | 5 | 4 | – | 1 | 1 | |||||||||||||||||
Trading account assets | (3 | ) | 10 | 7 | (5 | ) | – | (5 | ) | |||||||||||||||
Investment securities: | ||||||||||||||||||||||||
U.S. Treasury and federal agencies | 60 | 270 | 330 | 51 | 76 | 127 | ||||||||||||||||||
State and political subdivisions | (4 | ) | 5 | 1 | 1 | (10 | ) | (9 | ) | |||||||||||||||
Other investments | 296 | 300 | 596 | 68 | (50 | ) | 18 | |||||||||||||||||
Commercial and financial loans | 5 | 42 | 47 | 1 | (3 | ) | (2 | ) | ||||||||||||||||
Lease financing | 1 | 4 | 5 | 5 | (37 | ) | (32 | ) | ||||||||||||||||
Total interest-earning assets | 119 | 1,021 | 1,140 | 229 | 13 | 242 | ||||||||||||||||||
Interest Expense Related to: | ||||||||||||||||||||||||
Deposits: | ||||||||||||||||||||||||
Time | (44 | ) | 38 | (6 | ) | 6 | 7 | 13 | ||||||||||||||||
Savings | 1 | 14 | 15 | (1 | ) | 1 | – | |||||||||||||||||
Non-U.S. | 85 | 526 | 611 | 99 | 28 | 127 | ||||||||||||||||||
Securities sold under repurchase agreements | (5 | ) | 384 | 379 | 2 | 27 | 29 | |||||||||||||||||
Federal funds purchased | (8 | ) | 42 | 34 | – | 8 | 8 | |||||||||||||||||
Other short-term borrowings | 5 | 20 | 25 | (5 | ) | 4 | (1 | ) | ||||||||||||||||
Long-term debt | 6 | 31 | 37 | 22 | 1 | 23 | ||||||||||||||||||
Total interest-bearing liabilities | 40 | 1,055 | 1,095 | 123 | 76 | 199 | ||||||||||||||||||
Net interest revenue | $ | 79 | $ | (34 | ) | $ | 45 | $ | 106 | $ | (63 | ) | $ | 43 | ||||||||||
2005 Quarters | 2004 Quarters | |||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fourth | Third | Second | First | Fourth | Third | Second | First | |||||||||||||||||||||||||
(Dollars and shares in millions, except per share data) | ||||||||||||||||||||||||||||||||
Consolidated Statement of Income: | ||||||||||||||||||||||||||||||||
Total fee revenue | $ | 1,176 | $ | 1,135 | $ | 1,143 | $ | 1,097 | $ | 1,029 | $ | 961 | $ | 1,045 | $ | 1,013 | ||||||||||||||||
Interest revenue | 861 | 773 | 693 | 603 | 532 | 463 | 408 | 384 | ||||||||||||||||||||||||
Interest expense | 619 | 537 | 476 | 391 | 315 | 250 | 182 | 181 | ||||||||||||||||||||||||
Net interest revenue | 242 | 236 | 217 | 212 | 217 | 213 | 226 | 203 | ||||||||||||||||||||||||
Provision for loan losses | – | – | – | – | (18 | ) | – | – | – | |||||||||||||||||||||||
Net interest revenue after provision for loan losses | 242 | 236 | 217 | 212 | 235 | 213 | 226 | 203 | ||||||||||||||||||||||||
(Losses) gains on sales of available- for-sale securities, net | (2 | ) | 1 | 1 | (1 | ) | 7 | – | 16 | 3 | ||||||||||||||||||||||
Gain on sales of divested businesses, net | – | 16 | – | – | – | – | – | – | ||||||||||||||||||||||||
Total revenue | 1,416 | 1,388 | 1,361 | 1,308 | 1,271 | 1,174 | 1,287 | 1,219 | ||||||||||||||||||||||||
Total operating expenses | 1,039 | 1,008 | 1,028 | 966 | 992 | 906 | 953 | 908 | ||||||||||||||||||||||||
Income from continuing operations before income taxes | 377 | 380 | 333 | 342 | 279 | 268 | 334 | 311 | ||||||||||||||||||||||||
Income tax expense from continuing operations | 128 | 130 | 113 | 116 | 95 | 91 | 114 | 94 | ||||||||||||||||||||||||
Income from continuing operations | 249 | 250 | 220 | 226 | 184 | 177 | 220 | 217 | ||||||||||||||||||||||||
Net loss from discontinued operations | – | (107 | ) | – | – | – | – | – | – | |||||||||||||||||||||||
Net income | $ | 249 | $ | 143 | $ | 220 | $ | 226 | $ | 184 | $ | 177 | $ | 220 | $ | 217 | ||||||||||||||||
Earnings Per Share From Continuing Operations: | ||||||||||||||||||||||||||||||||
Basic | $ | .75 | $ | .76 | $ | .67 | $ | .68 | $ | .55 | $ | .52 | $ | .66 | $ | .65 | ||||||||||||||||
Diluted | .74 | .75 | .66 | .67 | .55 | .52 | .65 | .63 | ||||||||||||||||||||||||
Loss Per Share From Discontinued Operations: | ||||||||||||||||||||||||||||||||
Basic | $ | – | $ | (.33 | ) | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | |||||||||||||||
Diluted | – | (.32 | ) | – | – | – | – | – | – | |||||||||||||||||||||||
Earnings Per Share: | ||||||||||||||||||||||||||||||||
Basic | $ | .75 | $ | .43 | $ | .67 | $ | .68 | $ | .55 | $ | .52 | $ | .66 | $ | .65 | ||||||||||||||||
Diluted | .74 | .43 | .66 | .67 | .55 | .52 | .65 | .63 | ||||||||||||||||||||||||
Average Shares Outstanding: | ||||||||||||||||||||||||||||||||
Basic | 331 | 329 | 330 | 332 | 333 | 336 | 335 | 335 | ||||||||||||||||||||||||
Diluted | 337 | 334 | 334 | 335 | 337 | 339 | 341 | 342 | ||||||||||||||||||||||||
Dividends per share | $ | .19 | $ | .18 | $ | .18 | $ | .17 | $ | .17 | $ | .16 | $ | .16 | $ | .15 | ||||||||||||||||
Stock price: | ||||||||||||||||||||||||||||||||
High | 59.80 | 51.50 | 51.93 | 49.25 | 49.25 | 50.12 | 54.39 | 56.90 | ||||||||||||||||||||||||
Low | 48.47 | 47.20 | 40.62 | 42.60 | 39.91 | 41.59 | 45.39 | 49.00 | ||||||||||||||||||||||||
Close | 55.44 | 48.92 | 48.25 | 43.72 | 49.12 | 42.71 | 49.04 | 52.13 | ||||||||||||||||||||||||
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
STATE STREET CORPORATION
February 17, 2006
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Consolidated Statement of Changes in Shareholders’ Equity — Years ended December 31, 2005, 2004 and 2003 |
2.1 | Sale and Purchase Agreement between Deutsche Bank AG and State Street Corporation dated as of November 5, 2002, as amended by Amendment No. 1 thereto dated January 31, 2003, and by Amendment No. 2 thereto dated as of January 31, 2003 (filed as Exhibit 99.2 to Registrant’s Current Report on Form 8-K dated January 31, 2003, and incorporated herein by reference) | |||||
3.1 | Restated Articles of Organization, as amended (filed as Exhibit 3.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 and incorporated herein by reference) | |||||
3.2 | By-laws, as amended (filed as Exhibit 3.1 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004 and incorporated herein by reference) | |||||
4.1 | The description of the Registrant’s Common Stock is included in the Registrant’s Registration Statement on Forms 8-A, as filed on January 18, 1995 and March 7, 1995, as supplemented by the description of the Registrant’s Preferred Stock Purchase Rights attached to the Common Stock included in the Registrant’s Registration Statement on Forms 8-A (filed on January 18, 1995 and March 7, 1995 and as updated by Form 8-A/A filed on July 7, 1998, and incorporated herein by reference) | |||||
4.2 | Amended and Restated Rights Agreement dated as of June 18, 1998 between Registrant and Bank Boston N.A., as Rights Agent (filed as Exhibit 99.1 to Registrant’s Current Report on Form 8-K dated June 18, 1998 and incorporated herein by reference) | |||||
4.3 | Certificate of Designation, Preference and Rights (filed as Exhibit 3.1 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein 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’s 7-3/4% Convertible Subordinated Debentures due 2008 (filed as Exhibit 4 to Registrant’s Registration Statement on Form S-3 (Commission File No. 2-83251) and incorporated herein 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 as Exhibit 4 to Registrant’s Current Report on Form 8-K dated October 8, 1993 and incorporated herein by reference) | |||||
4.6 | Instrument of Resignation, Appointment, and Acceptance, dated as of February 14, 1996 among Registrant, The First National Bank of Boston (resigning trustee) and Fleet National Bank of Massachusetts (successor trustee) (filed as Exhibit 4.6 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference) | |||||
4.7 | Instrument of Resignation, Appointment and Acceptance dated as of June 26, 1997 among the Registrant, Fleet National Bank (resigning trustee) and First Trust National Association (now known as U.S. Bank National Association) (successor trustee) (filed as Exhibit 4.13 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference) | |||||
4.8 | Junior Subordinated Indenture dated as of December 15, 1996 between Registrant and Bank One Trust Company, N.A. (as successor in interest to The First National Bank of Chicago), as trustee (filed as Exhibit 1 to Registrant’s Current Report on Form 8-K dated February 27, 1997 and incorporated herein by reference) | |||||
4.9 | First Supplemental Indenture dated as of January 21, 2003 to the Junior Subordinated Indenture as of December 15, 1996 between Registrant and Bank One Trust Company, N.A., as trustee (filed as Exhibit 4.27 to Registrant’s Current Report on Form 8-K dated January 21, 2003 and incorporated herein by reference) | |||||
4.10 | Amended and Restated Trust Agreement dated as of December 15, 1996 relating to State Street Institutional Capital A (filed as Exhibit 2 to Registrant’s Current Report on Form 8-K dated February 27, 1997 and incorporated herein by reference) | |||||
4.11 | Capital Securities Guarantee Agreement dated as of December 15, 1996 between Registrant and Bank One Trust Company, N.A. (as successor in interest to The First National Bank of Chicago) (filed as Exhibit 3 to Registrant’s Current Report on Form 8-K dated February 27, 1997 and incorporated herein by reference) | |||||
4.12 | Amended and Restated Trust Agreement, dated March 11, 1997 relating to State Street Institutional Capital B (filed as Exhibit 2 to Registrant’s Current Report on Form 8-K dated April 17, 1997 and incorporated herein by reference) | |||||
4.13 | Capital Securities Guarantee Agreement dated March 11, 1997 between Registrant and Bank One Trust Company, N.A. (as successor in interest to The First National Bank of Chicago) (filed as Exhibit 3 to Registrant’s Current Report on Form 8-K dated April 17, 1997 and incorporated herein by reference) | |||||
4.14 | Indenture dated as of June 15, 2000 between Registrant and Bank One Trust Company, N.A., as trustee (filed as Exhibit 4.26 to Post-Effective Amendment No. 1 to Registrant’s Registration Statement on Form S-3 filed on June 20, 2000, Commission File No. 333-34516, and incorporated herein by reference) | |||||
4.15 | Certificate of Trust of State Street Capital Trust II, as filed with the Delaware Secretary of State on March 25, 1998 (filed as Exhibit 4.18 to Registrant’s Registration Statement on Form S-3 filed on April 1, 1998, Commission File No. 333-49143, and incorporated herein by reference) | |||||
4.16 | Certificate of Trust of State Street Capital Trust III, as filed with the Delaware Secretary of State on March 25, 1998 (filed as Exhibit 4.19 to Registrant’s Registration Statement on Form S-3 filed on April 1, 1998, Commission File No. 333-49143, and incorporated herein by reference) | |||||
4.17 | Certificate of Trust of State Street Capital Trust IV, as filed with the Delaware Secretary of State on March 31, 2000 (filed as Exhibit 4.19 to Registrant’s Registration Statement on Form S-3 filed on April 11, 2000, Commission File No. 333-34516, and incorporated herein by reference) |
4.18 | Declaration of Trust of State Street Capital Trust II among Registrant, as Depositor, Bank One Trust Company, N.A. (as successor in interest to The First National Bank of Chicago), as Property Trustee, Bank One Delaware, Inc., as Delaware Trustee, and the Administrative Trustees named therein (filed as Exhibit 4.21 to Registrant’s Registration Statement on Form S-3 filed on April 1, 1998, Commission File No. 333-49143, and incorporated herein by reference) | |||||
4.19 | Declaration of Trust of State Street Capital Trust III among Registrant, as Depositor, Bank One Trust Company, N.A. (as successor in interest to The First National Bank of Chicago), as Property Trustee, Bank One Delaware, Inc., as Delaware Trustee, and the Administrative Trustees named therein (filed as Exhibit 4.22 to Registrant’s Registration Statement on Form S-3 filed on April 1, 1998, Commission File No. 333-49143, and incorporated herein by reference) | |||||
4.20 | Declaration of Trust of State Street Capital Trust IV among Registrant, as Depositor, Bank One Trust Company, N.A., as Property Trustee, Bank One Delaware, Inc., as Delaware Trustee, and the Administrative Trustees named therein (filed as Exhibit 4.22 to Registrant’s Registration Statement on Form S-3 filed on April 11, 2000, Commission File No. 333-34516, and incorporated herein by reference) | |||||
4.21 | Form of Amended and Restated Trust Agreement for each of State Street Capital Trust II, State Street Capital Trust III, and State Street Capital Trust IV among Registrant, as Depositor, Bank One Trust Company, N.A. (where applicable, as successor in interest to The First National Bank of Chicago), as Property Trustee, Bank One Delaware, Inc., as Delaware Trustee, and the Administrative Trustees named therein (filed as Exhibit 4.23 to Registrant’s Registration Statement on Form S-3 filed on April 11, 2000, Commission File No. 333-34516, and incorporated herein by reference) | |||||
4.22 | Form of Guarantee Agreement for each of State Street Capital Trust II, State Street Capital Trust III and State Street Capital Trust IV between Registrant, as guarantor, and Bank One Trust Company, N.A. (where applicable, as successor in interest to The First National Bank of Chicago), as trustee (filed as Exhibit 4.25 to Registrant’s Registration Statement on Form S-3 filed on April 11, 2000, Commission File No. 333-34516, and incorporated herein by reference) | |||||
(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 the 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) | ||||||
10.1† | Registrant’s Supplemental Executive Retirement Plan, together with individual benefit agreements (filed as Exhibit 10.1 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference) | |||||
10.1A† | Amendment No. 1 dated as of October 19, 1995, to Registrant’s Supplemental Executive Retirement Plan (filed as Exhibit 10.6A to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference) | |||||
10.2† | Registrant’s 1994 Stock Option and Performance Unit Plan (filed as Exhibit 10.17 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference) | |||||
10.2A† | Amendment No. 1 dated as of October 19, 1995 to Registrant’s 1994 Stock Option and Performance Unit Plan (filed as Exhibit 10.13A to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference) | |||||
10.2B† | Amendment No. 2 dated as of June 20, 1996 to Registrant’s 1994 Stock Option and Performance Unit Plan (filed as Exhibit 10.7B to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1998 and incorporated herein by reference) |
10.2C† | Amendment No. 3 dated as of June 28, 2000 to Registrant’s 1994 Stock Option and Performance Unit Plan, as amended (filed as Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference) | |||||
10.3† | Registrant’s Amended and Restated Supplemental Defined Benefit Pension Plan for Senior Executive Officers (filed as Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 3, 2004 and incorporated herein by reference) | |||||
10.3A† | Schedule B to Amended and Restated Supplemental Defined Benefit Pension Plan for Senior Executive Officers as applicable to J. Hooley | |||||
10.4† | State Street Global Advisors Incentive Plan for 1996 (filed as Exhibit 10.19 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference) | |||||
10.5† | Forms of Employment Agreement with Officers (Levels 1, 2, and 3) approved by the Board of Directors on September 1995 (filed as Exhibit 10.20 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by reference) | |||||
10.6† | State Street Global Advisors Equity Compensation Plan (filed as Exhibit 10 to Registrant’s Form 10-Q for the quarter ended September 30, 1996 and incorporated herein by reference) | |||||
10.7† | Registrant’s Senior Executive Annual Incentive Plan (filed as Exhibit 10.10 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001 and incorporated herein by reference) | |||||
10.8† | Registrant’s Executive Compensation Trust Agreement dated December 6, 1996 (Rabbi Trust) (filed as Exhibit 10.18 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by reference) | |||||
10.9† | Registrant’s 1997 Equity Incentive Plan (filed as Exhibit 10.22 to Registrant’s Form 10-Q for the quarter ended June 30, 1997 and incorporated herein by reference) | |||||
10.9A† | Amendment No. 2 to Registrant’s 1997 Equity Incentive Plan (filed as Exhibit 10.17 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by reference) | |||||
10.9B† | Amendment No. 3 dated as of April 24, 2000 to Registrant’s 1997 Equity Incentive Plan, as amended (filed as Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 and incorporated herein by reference) | |||||
10.9C† | Amendment No. 4 dated as of June 28, 2000 to Registrant’s 1997 Equity Incentive Plan, as amended (filed as Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference) | |||||
10.9D† | Amendment No. 5 dated as of December 20, 2001 to Registrant’s 1997 Equity Incentive Plan, as amended (filed as Exhibit 12D to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001 and incorporated herein by reference) | |||||
10.9E† | Form of Performance Award agreement under the 1997 Equity Incentive Plan (filed as Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 and incorporated herein by reference) | |||||
10.9F† | Form of Performance Award deferral election agreement under the 1997 Equity Incentive Plan (filed as Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 and incorporated herein by reference) | |||||
10.9G† | Form of Non-Qualified Stock Option Award agreement under the 1997 Equity Incentive Plan (filed as Exhibit 10.3 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 and incorporated herein by reference) |
10.9H† | Form of Incentive Stock Option Award agreement under the 1997 Equity Incentive Plan (filed as Exhibit 10.4 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 and incorporated herein by reference) | |||||
10.9I† | Form of Restrictive Stock Award agreement under the 1997 Equity Incentive Plan (filed as Exhibit 10.5 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 and incorporated herein by reference) | |||||
10.9J† | Form of Deferred Stock Award Agreement under the 1997 Equity Incentive Plan (filed as Exhibit 10.6 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 and incorporated herein by reference) | |||||
10.9K† | Form of Performance-Based Equity Award to SSgA employees under the 1997 Equity Incentive Plan (filed as Exhibit 10.7 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 and incorporated herein by reference) | |||||
10.9L† | Form of Deferred Stock Award to Non-Employee Directors under the 1997 Equity Incentive Plan (filed as Exhibit 10.12L to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004 and incorporated herein by reference) | |||||
10.10† | Description of compensation arrangements for non-employee directors (filed as Exhibit 10.13G to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004 and incorporated herein by reference) | |||||
10.11† | Amended and Restated Deferred Compensation Plan for Directors of State Street Corporation (filed as Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 and incorporated herein by reference) | |||||
10.12† | Amended and Restated Deferred Compensation Plan for Directors of State Street Bank and Trust Company (filed as Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 and incorporated herein by reference) | |||||
10.13† | Registrant’s 401(k) Restoration and Voluntary Deferral Plan (filed as Exhibit 10 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference) | |||||
10.14† | Registrant’s Savings-Related Stock Plan for United Kingdom employees (filed as Exhibit 99.1 to Registrant’s Registration Statement on Form S-8 filed on September 23, 2002, Commission File No. 333-100001, and incorporated herein by reference) | |||||
10.15† | Memorandum of Agreement with Nicholas A. Lopardo (filed as Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 and incorporated herein by reference) | |||||
10.16† | Memorandum of agreement of employment of Edward J. Resch, accepted October 16, 2002 (filed as Exhibit 10.23 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002 and incorporated herein by reference) | |||||
10.17† | Memorandum of Agreement with Maureen Scannell Bateman supplemental to an Executive Voluntary Separation election (filed as Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference) | |||||
10.18† | Retirement Agreement with David A. Spina (filed as Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 and incorporated herein by reference) | |||||
11.1 | Computation of Earnings per Share (information appears in Note 22 of the “Notes to Consolidated Financial Statements” included under Part II, Item 8. | |||||
12.1 | Statement of ratios of earnings to fixed charges | |||||
21.1 | Subsidiaries of State Street Corporation | |||||
23.1 | Consent of Independent Registered Public Accounting Firm |
31.1 | Rule 13a-14(a)/15d-14(a) Certification | |||||
31.2 | Rule 13a-14(a)/15d-14(a) Certification | |||||
32 | Section 1350 Certifications | |||||
† | Denotes management contract or compensatory plan or arrangement |
By | /s/ EDWARD J. RESCH EDWARD J. RESCH, Executive Vice President and Chief Financial Officer |
By | /s/ PAMELA D. GORMLEY PAMELA D. GORMLEY, Executive Vice President and Corporate Controller |
OFFICERS: | ||||||
/s/ RONALD E. LOGUE RONALD E. LOGUE, Chairman and Chief Executive Officer; Director | /s/ EDWARD J. RESCH EDWARD J. RESCH, Executive Vice President and Chief Financial Officer | |||||
/s/ PAMELA D. GORMLEY PAMELA D. GORMLEY, Executive Vice President and Corporate Controller | ||||||
DIRECTORS: | ||||||
/s/ TENLEY E. ALBRIGHT TENLEY E. ALBRIGHT, M.D. | /s/ KENNETT F. BURNES KENNETT F. BURNES | |||||
/s/ TRUMAN S. CASNER TRUMAN S. CASNER | /s/ NADER F. DAREHSHORI NADER F. DAREHSHORI | |||||
/s/ ARTHUR L. GOLDSTEIN ARTHUR L. GOLDSTEIN | /s/ DAVID P. GRUBER DAVID P. GRUBER | |||||
/s/ LINDA A. HILL LINDA A. HILL | /s/ CHARLES R. LAMANTIA CHARLES R. LAMANTIA | |||||
/s/ RONALD E. LOGUE RONALD E. LOGUE | /s/ RICHARD P. SERGEL RICHARD P. SERGEL | |||||
/s/ RONALD L. SKATES RONALD L. SKATES | /s/ GREGORY L. SUMME GREGORY L. SUMME | |||||
/s/ DIANA CHAPMAN WALSH DIANA CHAPMAN WALSH | /s/ ROBERT E. WEISSMAN ROBERT E. WEISSMAN |
10.3A | Schedule B to Amended and Restated Supplemental Defined Benefit Pension Plan for Senior Executive Officers as applicable to J. Hooley | |||||
12.1 | Statement of ratios of earnings to fixed charges | |||||
21.1 | Subsidiaries of State Street Corporation | |||||
23.1 | Consent of Independent Registered Public Accounting Firm | |||||
31.1 | Rule 13a-14(a)/15d-14(a) Certification | |||||
31.2 | Rule 13a-14(a)/15d-14(a) Certification | |||||
32 | Section 1350 Certifications |