EXHIBIT 13.4
STATE STREET BOSTON CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
CONSOLIDATED STATEMENT OF INCOME
State Street Boston Corporation
(Dollars in thousands, except per share data) 1993 1992 1991
INTEREST REVENUE
Deposits with banks $201,455 $257,615 $261,992
Investment securities:
U.S. Treasury and Federal agencies 119,495 115,745 115,599
State and political subdivisions (exempt from Federal tax) 25,185 19,345 22,923
Other investments 96,905 87,094 99,211
Loans 127,651 116,516 159,217
Securities purchased under resale agreements and Federal funds sold 114,979 109,149 69,201
Trading account assets 13,198 8,932 9,645
Total interest revenue 698,868 714,396 737,788
INTEREST EXPENSE
Deposits 202,810 248,851 286,751
Other borrowings 168,423 169,905 164,244
Long-term debt 10,022 13,324 13,238
Total interest expense 381,255 432,080 464,233
Net interest revenue 317,613 282,316 273,555
Provision for loan losses - Note C 11,320 12,201 60,012
Net interest revenue after provision for loan losses 306,293 270,115 213,543
FEE REVENUE
Fiduciary compensation 627,769 545,377 442,489
Other - Note K 205,646 157,503 121,394
Total fee revenue 833,415 702,880 563,883
Gain on sale of credit card loan portfolio - Note J 56,200
REVENUE BEFORE OPERATING EXPENSES 1,139,708 972,995 833,626
OPERATING EXPENSES
Salaries and employee benefits - Note N 479,168 409,888 336,764
Occupancy, net 60,643 53,259 45,747
Equipment 100,295 66,965 48,427
Other - Note L 222,147 186,322 177,600
Total operating expenses 862,253 716,434 608,538
Income before income taxes 277,455 256,561 225,088
Income taxes - Note O 97,626 96,118 85,818
NET INCOME $179,829 $160,443 $139,270
EARNINGS PER SHARE
Primary $2.36 $2.10 $1.86
Fully diluted 2.33 2.07 1.81
AVERAGE SHARES OUTSTANDING (in thousands)
Primary 76,193 76,235 74,969
Fully diluted 77,177 77,698 77,116
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENT OF CONDITION
State Street Boston Corporation
(Dollars in thousands) December 31, 1993 1992
ASSETS
Cash and due from banks - Note R $ 1,469,395 $ 1,284,467
Interest-bearing deposits with banks 5,148,249 4,803,246
Securities purchased under resale agreements - Note E 2,267,546 3,037,220
Federal funds sold 188,000 218,500
Trading account assets 159,446 164,566
Investment securities - Notes B and E:
Held for investment (market value $4,507,248
and $3,173,592) 4,484,104 3,151,774
Available for sale (market value $1,221,921
and $973,118) 1,217,095 940,563
Total investment securities 5,701,199 4,092,337
Loans - Note C 2,680,174 2,003,713
Allowance for loan losses (54,316) (57,931)
Net loans 2,625,858 1,945,782
Premises and equipment - Notes D and G 445,109 412,800
Customers' acceptance liability 65,643 35,011
Accrued income receivable 280,976 216,362
Other assets 368,702 279,537
TOTAL ASSETS $18,720,123 $16,489,828
LIABILITIES
Deposits:
Noninterest-bearing $ 5,450,183 $ 4,373,491
Interest-bearing:
Domestic 2,140,457 2,269,002
Foreign 5,427,231 4,417,574
Total deposits 13,017,871 11,060,067
Federal funds purchased 269,083 623,670
Securities sold under repurchase
agreements - Note E 2,972,928 2,751,416
Other short-term borrowings 469,265 135,047
Notes payable - Note F 149,990 336,381
Acceptances outstanding 65,928 35,420
Accrued taxes and other expenses - Note O 373,152 309,933
Other liabilities 167,993 138,960
Long-term debt - Note G 128,939 145,799
TOTAL LIABILITIES 17,615,149 15,536,693
Commitments and contingent liabilities - Notes P and Q
STOCKHOLDERS' EQUITY -- NOTES G, H, I AND R
Preferred stock, no par: authorized 3,500,000;
issued none Common stock, $1 par: authorized
112,000,000; issued 75,874,000 and 75,061,000 75,874 75,061
Surplus 19,253 8,001
Retained earnings 1,009,847 870,073
TOTAL STOCKHOLDERS' EQUITY 1,104,974 953,135
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,720,123 $16,489,828
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
State Street Boston Corporation
(Dollars in thousands) 1993 1992 1991
OPERATING ACTIVITIES
Net income $ 179,829 $ 160,443 $ 139,270
Noncash charges for depreciation, amortization,
provision for loan losses and foreclosed
properties, and deferred income taxes 163,858 117,924 117,029
Net income adjusted for noncash charges 343,687 278,367 256,299
Adjustments to reconcile to net cash provided
(used) by operating activities:
Securities (gains) losses, net (15,375) (12,274) (3,340)
Net change in:
Accrued income receivable (64,614) (9,947) (2,145)
Accrued taxes and other expenses 21,286 12,187 35,823
Trading account assets 5,120 89,415 (138,605)
Other, net (62,193) (16,032) (45,642)
NET CASH PROVIDED BY OPERATING ACTIVITIES 227,911 341,716 102,390
INVESTING ACTIVITIES
Payments for purchases of:
Held-for-investment securities (3,673,561) (3,337,307) (2,028,684)
Available-for-sale securities (1,364,457)
Lease financing assets (426,313) (194,897) (135,779)
Premises and equipment (116,379) (152,070) (109,255)
Proceeds from:
Maturities of held-for-investment securities 2,318,776 1,966,823 1,381,244
Maturities of available-for-sale securities 167,399
Sales of investment securities 522,012 37,884
Sales of available-for-sale securities 935,816
Sale of credit card loan portfolio 436,340
Principal collected from lease financing 45,536 48,440 59,332
Net (payments for) proceeds from:
Interest-bearing deposits with banks (345,003) (972,443) (886,364)
Federal funds sold and securities
purchased under resale agreements 800,174 772,084 (2,809,364)
Loans (617,280) (84,044) 160,420
NET CASH USED BY INVESTING ACTIVITIES (2,275,292) (1,431,402) (3,694,226)
FINANCING ACTIVITIES
Proceeds from issuance of:
Long-term debt 99,025
Notes payable 149,868
Nonrecourse debt for lease financing 347,042 146,424 107,742
Common and treasury stock 6,035 5,810 3,261
Payments for:
Maturity of notes payable (100,000) (100,000)
Nonrecourse debt for lease financing (38,695) (39,572) (42,902)
Long-term debt (114,213) (650) (591)
Cash dividends (39,297) (33,293) (28,415)
Net proceeds from (payments for):
Deposits 1,957,804 2,328,706 1,073,724
Short-term borrowings 14,608 (1,099,901) 2,192,726
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,232,309 1,357,392 3,205,545
NET INCREASE (DECREASE) 184,928 267,706 (386,291)
Cash and due from banks at beginning of period 1,284,467 1,016,761 1,403,052
CASH AND DUE FROM BANKS AT END OF PERIOD $1,469,395 $1,284,467 $1,016,761
SUPPLEMENTAL DISCLOSURE
Interest paid $ 382,310 $ 440,335 $ 462,268
Income taxes paid 56,370 63,497 58,415
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
State Street Boston Corporation
COMMON RETAINED TREASURY
(Dollars in thousands) STOCK SURPLUS EARNINGS STOCK TOTAL
BALANCE AT DECEMBER 31, 1990 $36,824 $29,956 $634,896 $(6,622) $ 695,054
Net income 139,270 139,270
Cash dividends declared - $.385 per share (28,415) (28,415)
Issuance of common and treasury stock -
671,066 net shares 396 3,911 6,622 10,929
Foreign currency translation (269) (269)
BALANCE AT DECEMBER 31, 1991 37,220 33,867 745,482 -- 816,569
Net income 160,443 160,443
Cash dividends declared - $.445 per share (33,293) (33,293)
Stock dividend, two-for-one split 37,318 (37,318)
Issuance of common stock - 523,346 net shares 523 11,452 11,975
Foreign currency translation (2,559) (2,559)
BALANCE AT DECEMBER 31, 1992 75,061 8,001 870,073 -- 953,135
Net income 179,829 179,829
Cash dividends declared - $.520 per share (39,297) (39,297)
Issuance of common stock - 812,902 net shares 813 11,252 12,065
Foreign currency translation (758) (758)
BALANCE AT DECEMBER 31, 1993 $75,874 $19,253 $1,009,847 $ -- $1,104,974
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of State Street Boston Corporation
(``State Street'') and its subsidiaries conform to generally accepted
accounting principles. The significant policies are summarized below.
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of State Street Boston Corporation and its subsidiaries, including
its principal subsidiary, State Street Bank and Trust Company (``State Street
Bank''). All significant intercompany balances and transactions have been
eliminated upon consolidation. The results of operations of businesses purchased
are included from the date of acquisition. State Street's investment in its
50%-owned affiliate, Boston Financial Data Services, Inc., is accounted for by
the equity method. Certain previously reported amounts have been reclassified
to conform to the current method of presentation. Where appropriate, number of
shares and per share amounts have been restated to reflect a stock split in
1992 (see Note H). For the Consolidated Statement of Cash Flows, State Street
has defined cash equivalents as those amounts included in the Statement of
Condition caption, ``Cash and due from banks.''
SECURITIES: Debt securities are held in both the investment and trading account
portfolios. In 1992, State Street modified its accounting policy for debt
securities, classifying a portion of its investment portfolio as available for
sale.
Debt securities for which there exist the ability and intent to hold to maturity
are classified as held for investment and are stated at cost, adjusted for
amortization of premiums and accretion of discounts. Securities classified as
available for sale are intended to be held for indefinite periods of time, but
not necessarily to maturity. Available-for-sale securities are carried at the
lower of amortized cost or market, with any valuation adjustments reflected in
fee revenue. Securities classified as available for sale are purchased in
connection with State Street's interest-rate risk management and may
be sold in response to changes in interest rates and other factors. Gains or
losses on securities sold are computed based on identified costs and included
in fee revenue. Trading account assets are held in anticipation of short-term
market movements and for resale to customers. Trading account assets are
carried at market value, and the resulting adjustment is reflected in fee
revenue.
In 1993, Statement of Financial Accounting Standards No. 115, ``Accounting for
Certain Investments in Debt and Equity Securities,'' was issued. This statement
requires that available-for-sale securities be reported at fair value, with
unrealized gains and losses, net of taxes, reported in a separate component of
stockholders' equity. State Street will adopt this new statement in 1994.
LOANS AND LEASE FINANCING: Loans are placed on a non-accrual basis when they
become 60 days past due as to either principal or interest, or when in the
opinion of management, full collection of principal or interest is unlikely.
When the loan is placed on non-accrual, the accrual of interest is discontinued,
and previously recorded but unpaid interest is reversed and charged against
current earnings.
Subsidiaries of State Street provide asset-based financing to customers through
a variety of lease arrangements. Direct financing leases are carried at the
aggregate of lease payments receivable plus estimated residual value less
unearned revenue. Revenue on direct financing leases is recognized on a basis
calculated to achieve a constant rate of return on the outstanding net
receivable balance. Leveraged leases are carried net of nonrecourse debt.
Revenue on leveraged leases is recognized on a basis calculated to achieve a
constant rate of return on the outstanding investment in the leases, net of
related deferred tax liabilities, in the years in which the net investment is
positive. Gains and losses on residual values of leased equipment sold are
included in fee revenue.
ALLOWANCE FOR LOAN LOSSES: The adequacy of the allowance for loan losses is
evaluated on a regular basis by management. Factors considered in evaluating
the adequacy of the allowance include previous loss experience, current
economic conditions and their effect on borrowers, and the performance of
individual credits in relation to contract terms. The provision for loan
losses charged to earnings is based upon management's judgment of the amount
necessary to maintain the allowance at a level adequate to absorb probable
losses.
In 1993, Statement of Financial Accounting Standards No. 114, ``Accounting by
Creditors for Impairment of a Loan,'' was issued. This statement addresses how
creditors should establish allowances for credit losses on individual loans
determined to be impaired. State Street plans to adopt this new statement
in 1995, and it is not expected to have a material impact.
PREMISES AND EQUIPMENT: Premises, equipment and leasehold improvements are
carried at cost less accumulated depreciation and amortization. Depreciation and
amortization charged to operating expenses are computed using the straight-line
method over the estimated useful life of the related asset or the remaining term
of the lease.
OTHER REAL ESTATE OWNED (OREO): OREO includes properties acquired in
satisfaction of debt and loans considered to be in-substance foreclosures. The
properties are carried at the lower of cost or fair market value and are
included in other assets. Reductions in carrying value are recognized through
charges to other operating expenses. The costs of maintaining and operating
foreclosed properties are expensed as incurred.
FOREIGN CURRENCY TRANSLATION: The assets and liabilities of foreign operations
are translated at month-end exchange rates, and revenue and expenses are
translated at average monthly exchange rates. Gains or losses from the
translation of the net assets of certain foreign subsidiaries, net of foreign
currency hedges and related taxes, are credited or charged to retained earnings.
Gains or losses from other translations are included in fee revenue.
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN EXCHANGE TRADING: Foreign exchange trading positions are valued daily,
at prevailing exchange rates, and the resulting gain or loss is included in fee
revenue.
INTEREST-RATE CONTRACTS: State Street uses interest-rate contracts as part of
its overall interest-rate risk management. Gains and losses on interest-rate
futures and option contracts that are designated as hedges and effective as such
are deferred and amortized over the remaining life of the hedged assets or
liabilities as an adjustment to interest revenue or expense. Interest-rate swap
contracts that are entered into as a part of interest-rate management are
accounted for using the accrual method as an adjustment to interest expense.
Interest-rate contracts related to trading activities are adjusted to market
value with the resulting gains or losses included in fee revenue.
INCOME TAXES: The provision for income taxes includes deferred income taxes
arising as a result of reporting some items of revenue and expense in different
years for tax and financial reporting purposes. In 1993, State Street adopted
Statement of Financial Accounting Standards No. 109, ``Accounting for Income
Taxes,'' which prescribes the liability method of accounting for income taxes.
Prior years, which were accounted for under the deferral method, were not
restated, and the impact of the adoption in 1993 was not material.
EARNINGS PER SHARE: The computation of primary earnings per share is based on
the weighted average number of shares of common stock and common stock
equivalents outstanding during each period. Stock option grants are
included only in periods when the results are dilutive. The computation of fully
diluted earnings per share additionally includes the assumption that the
convertible debt had been converted as of the beginning of each period, with the
elimination of related interest expense less the income tax benefit.
NOTE B INVESTMENT SECURITIES
Investment securities consisted of the following at December 31:
1993 1992
BOOK UNREALIZED Market Book Unrealized Market
(Dollars in thousands) VALUE GAINS LOSSES Value Value Gains Losses Value
HELD FOR INVESTMENT
U.S. Treasury and
Federal agencies $1,272,370 $11,522 $ 1,673 $1,282,219 $996,294 $13,980 $2,092 $1,008,182
State and political
subdivisions 1,083,879 7,006 494 1,090,391 450,980 5,432 83 456,329
Asset-backed securities 2,028,099 9,800 4,345 2,033,554 1,617,730 9,798 5,058 1,622,470
Other investments 99,756 1,398 70 101,084 86,770 200 359 86,611
Total 4,484,104 29,726 6,582 4,507,248 3,151,774 29,410 7,592 3,173,592
AVAILABLE FOR SALE
U.S. Treasuries 1,121,605 9,000 4,597 1,126,008 940,563 32,898 343 973,118
Other investments 95,490 423 95,913
Total 1,217,095 9,423 4,597 1,221,921 940,563 32,898 343 973,118
Total investment
securities $5,701,199 $39,149 $11,179 $5,729,169 $4,092,337 $62,308 $7,935 $4,146,710
The book and market value of investment securities by maturity at December 31,
1993, were as follows:
WITHIN AFTER ONE AFTER FIVE AFTER
ONE YEAR BUT WITHIN BUT WITHIN TEN
(Dollars in thousands) OR LESS FIVE YEARS TEN YEARS YEARS
HELD FOR INVESTMENT
Book value $2,550,772 $1,693,413 $196,563 $43,356
Market value 2,558,234 1,705,662 $198,251 $45,101
AVAILABLE FOR SALE
Book value 388,570 828,525
Market value 396,394 825,527
The maturity of asset-backed securities is based upon the expected principal
payments. Securities carried at $2,656,300,000 and $2,770,800,000 at December
31, 1993 and 1992, respectively, were designated as security for public and
trust deposits, borrowed funds and for other purposes as provided by law.
During 1993, gains of $15,426,000 and losses of $51,000 were realized on sales
of available-for-sale securities of $935,816,000. During 1992, gains of
$14,201,000 and losses of $1,927,000 were realized on sales of investment
securities of $522,012,000.
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE C LOANS
The loan portfolio consisted of the following at December 31:
(Dollars in thousands) 1993 1992
Commercial and financial $1,889,143 $1,519,037
Real estate 94,073 105,156
Consumer 46,315 64,841
Foreign 325,142 62,918
Lease financing 325,501 251,761
Total loans $2,680,174 $2,003,713
Non-accrual loans $ 26,804 $ 40,277
Interest revenue under original terms 2,796 4,470
Interest revenue recognized 812 1,449
Changes in the allowance for loan losses for the years ended December 31 were as
follows:
(Dollars in thousands) 1993 1992 1991
Balance at beginning of year $57,931 $65,888 $50,975
Provision for loan losses 11,320 12,201 60,012
Loan charge-offs (18,545) (23,514) (47,770)
Recoveries 2,205 3,356 2,671
Allowance of subsidiary purchased 1,405
Balance at end of year $54,316 $57,931 $65,888
Loans totaling $12,914,000 were restructured in 1993, are performing in
accordance with their new terms and are accruing at a market rate. During 1993
and 1992, loans totaling $1,387,000 and $3,473,000 were transferred to other
real estate owned.
NOTE D PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at December 31:
(Dollars in thousands) 1993 1992
Buildings and land $248,584 $237,554
Leasehold improvements 97,983 75,970
Equipment and furniture 395,895 319,084
742,462 632,608
Accumulated depreciation and amortization (297,353) (219,808)
Total premises and equipment, net $445,109 $412,800
State Street has entered into noncancelable operating leases for premises and
equipment. At December 31, 1993, future minimum payments under noncancelable
operating leases with initial or remaining terms of one year or more totaled
$486,693,000. This consisted of $28,371,000, $26,832,000, $31,416,000,
$30,054,000 and $26,715,000 for the years 1994 to 1998, respectively, and
$343,305,000 thereafter. The minimum rental commitments have been reduced by
sublease rental commitments of $10,581,000. Substantially all leases include
renewal options.
Total rental expense amounted to $25,641,000, $23,194,000 and $21,535,000 in
1993, 1992 and 1991, respectively. Rental expense has been reduced by sublease
revenue of $2,149,000, $3,515,000 and $879,000 in 1993, 1992 and 1991,
respectively.
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE E REPURCHASE AND RESALE AGREEMENTS
State Street enters into sales of U.S. Treasury and Federal agency securities
(``U.S. Government securities'') under repurchase agreements, which are treated
as financings, and the obligations to repurchase such securities sold are
reflected as a liability in the Consolidated Statement of Condition. The dollar
amount of U.S. Government securities underlying the repurchase agreements
remains in investment securities.
State Street enters into purchases of U.S. Government securities under
agreements to resell the securities, which are recorded as securities purchased
under resale agreements in the Consolidated Statement of Condition. These
securities can be used as collateral for repurchase agreements. It is State
Street's policy to take possession or control of the security underlying the
resale agreement. The securities are revalued daily to determine if additional
collateral is necessary.
NOTE F NOTES PAYABLE
At December 31, 1993, State Street Bank had outstanding $100 million of 5.65%
Bank Notes with a two-year maturity and due April, 1994, and $50 million of
5.30% Bank Notes with a two-year maturity and due June, 1994. The Bank Notes,
which are not subject to redemption, represent unsecured debt obligations of
State Street Bank. The Bank Notes are neither obligations of or guaranteed by
State Street and are recorded net of original issue discount.
NOTE G LONG-TERM DEBT
Long-term debt, less unamortized original issue discount, consisted of the
following at December 31:
(Dollars in thousands)
1993 1992
5.95% Notes due 2003 $ 99,634 $
8.50% Notes due 1996 74,856
7.75% Convertible subordinated debentures due 2008 3,922 6,343
9.50% Mortgage note due 2009 25,304 26,018
10.13% Mortgage note due 1993 38,500
Other 79 82
Total long-term debt $128,939 $145,799
The 5.95% and the 8.50% notes are unsecured obligations of State Street. The
8.50% notes were redeemed in November, 1993, at par.
The 7.75% debentures are convertible to common stock at a price of $5.75 per
share, subject to adjustment for certain events. The debentures are redeemable,
at the option of State Street, at a price of approximately 102.5%, declining
annually to par by 1998. During 1993 and 1992, $2,422,000 and $602,000 of
debentures were converted into 422,716 and 104,677 shares of common stock,
respectively. At December 31, 1993, 682,000 shares of authorized common stock
have been reserved for issuance upon conversion.
The 9.5% mortgage note was fully collaterized by property at December 31, 1993.
The aggregate maturities of this mortgage note for the years 1994 through 1998
are $785,000, $863,000, $948,000, $1,042,000 and $1,146,000, respectively. The
10.13% mortgage note was assumed with the purchase of property and matured in
February, 1993.
In August, 1993, a shelf registration statement became effective that allows
State Street to issue up to $250 million of unsecured debt securities. In
September, 1993, State Street issued $100 million of 5.95% Notes due 2003, and
the remaining balance of $150 million at December 31, 1993, is available for
issuance.
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE H STOCKHOLDERS' EQUITY
In 1992, State Street distributed a two-for-one stock split in the form of a
100% stock dividend to stockholders. The par value of these additional shares
was capitalized by a transfer from surplus to common stock.
In 1993, the Board of Directors authorized the repurchase of up to two million
shares of State Street's common stock. Shares purchased under the authorization,
if any, would be used for employee benefit plans. No purchases were made
through December 31, 1993.
State Street has long-term incentive plans from which stock options, stock
appreciation rights (SARs) and performance shares can be awarded. The exercise
price of non-qualified and incentive stock options may not be less than fair
value of such shares at date of grant and expire no longer than ten years from
date of grant. Performance shares have been granted to officers at the policy-
making level. Performance shares are earned over a performance period based on
achievement of goals. Payment for performance shares is made in cash equal to
the fair market value of the common stock after the conclusion of each
performance period. Compensation expense related to performance shares was
$2,126,000, $8,124,000 and $4,159,000 for 1993, 1992 and 1991, respectively.
Under the 1989 Stock Option Plan, options and SARs covering 2,800,000 shares of
common stock may be issued. Under the 1990 Stock Option and Performance Shares
Plan, options and SARs covering 2,000,000 shares of common stock and 2,000,000
performance shares may be issued. State Street has stock options and performance
shares outstanding from previous plans under which no further grants can be
made.
Option activity during 1993 and 1992 was as follows:
(In thousands, except per share amounts) Option Price
Shares Per Share Total
Outstanding, December 31, 1991 3,016 $ 3.52-26.94 $48,862
Granted 192 32.25-40.69 6,324
Exercised (526) 3.95-20.38 (6,138)
Canceled (22) 12.03-20.72 (355)
Outstanding, December 31, 1992 2,660 3.52-40.69 48,693
Granted 160 32.38-45.31 7,057
Exercised (393) 3.52-20.38 (6,273)
Canceled (31) 11.23-45.31 (701)
Outstanding, December 31, 1993 2,396 3.95-45.31 $48,776
At December 31, 1993, 1,004,428 shares under options were exercisable and
2,903,000 shares under options and SARs were available for future grants. During
1991, 884,000 options were exercised at per share prices of $1.46 to $16.38.
NOTE I SHAREHOLDERS' RIGHTS PLAN
In 1988, State Street declared a dividend of one preferred share purchase right
for each outstanding share of common stock. In 1992, State Street's common stock
was split two-for-one in the form of a 100% stock dividend to shareholders.
After giving effect to the split, under certain conditions, a right may be
exercised to purchase one two-hundredths share of a series of participating
preferred stock at an exercise price of $75, subject to adjustment. The rights
become exercisable if a party acquires or obtains the right to acquire 20% or
more of State Street's common stock or after commencement or public announcement
of an offer for 20% or more of State Street's common stock. When exercisable,
under certain conditions, each right also entitles the holder thereof to
purchase shares of common stock, of either State Street or of the acquiror,
having a market value of two times the then current exercise price of that
right.
The rights expire in 1998 and may be redeemed at a price of $.005 per right at
any time prior to expiration or the acquisition of 20% of State Street's common
stock. Also, under certain circumstances, the rights may be redeemed after they
become exercisable and may be subject to automatic redemption.
NOTE J SALE OF CREDIT CARD LOAN PORTFOLIO
In January, 1991, State Street sold its $431,000,000 credit card loan portfolio
resulting in a pre-tax gain of $56,200,000, which increased net income by
$32,600,000, equal to $.44 primary and $.43 fully diluted per share.
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE K FEE REVENUE - OTHER
The Other category of fee revenue consisted of the following for the years ended
December 31:
(Dollars in thousands) 1993 1992 1991
Foreign exchange trading $ 82,705 $ 57,904 $ 39,255
Processing service fees 46,083 30,414 19,765
Service fees 40,038 31,281 23,330
Securities gains, net 15,375 12,274 3,340
Bank card fees 4,254 4,930 13,278
Trading account profits 3,740 2,714 4,330
Other 13,451 17,986 18,096
Total fee revenue - other $205,646 $157,503 $121,394
NOTE L OPERATING EXPENSES - OTHER
The Other category of operating expenses consisted of the following for the
years ended December 31:
(Dollars in thousands) 1993 1992 1991
Contract services $ 64,080 $ 45,364 $ 47,344
Professional services 35,358 30,120 24,703
Telecommunications 21,326 18,119 14,673
Advertising and sales promotion 18,672 15,079 11,098
Postage, forms and supplies 17,927 16,847 16,448
FDIC and other insurance 17,263 16,906 12,438
Operating and processing losses 4,745 6,965 17,702
Other 42,776 36,922 33,194
Total operating expenses - other $222,147 $186,322 $177,600
NOTE M QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of operations:
(In thousands, except 1993 QUARTERS 1992 Quarters
per share data) FOURTH THIRD SECOND FIRST Fourth Third Second First
Interest revenue $186,832 $176,820 $171,831 $163,385 $169,429 $179,363 $183,606 $181,998
Interest expense 103,959 93,823 96,336 87,137 94,614 107,801 115,123 114,542
Net interest revenue 82,873 82,997 75,495 76,248 74,815 71,562 68,483 67,456
Provision for loan losses 2,880 2,880 2,880 2,680 2,495 1,897 1,906 5,903
Net interest revenue
after provision for
loan losses 79,993 80,117 72,615 73,568 72,320 69,665 66,577 61,553
Fee revenue 222,670 211,432 205,306 194,007 183,758 182,036 169,587 167,499
Total revenue 302,663 291,549 277,921 267,575 256,078 251,701 236,164 229,052
Operating expenses 229,100 218,425 211,609 203,119 188,787 183,728 175,138 168,781
Income before income
taxes 73,563 73,124 66,312 64,456 67,291 67,973 61,026 60,271
Income taxes 25,879 26,851 23,095 21,801 23,653 26,101 22,325 24,039
Net Income $ 47,684 $ 46,273 $ 43,217 $ 42,655 43,638 $ 41,872 $ 38,701 $ 36,232
Earnings Per Share:
Primary $.62 $.61 $.57 $.56 $.57 $.55 $.51 $.48
Fully diluted .62 .60 .56 .55 .56 .54 .50 .47
Average Shares Outstanding:
Primary 76,399 76,167 76,046 76,749 76,470 76,315 76,137 75,985
Fully diluted 77,224 77,141 77,120 77,851 77,745 77,514 77,409 77,256
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE N EMPLOYEE BENEFIT PLANS
State Street and its U.S. subsidiaries participate in a noncontributory cash
balance defined benefit plan covering employees based on age and service. The
plan provides individual account accumulations that are increased annually based
on salary, service and interest credits. State Street uses the projected unit
credit method as its actuarial valuation method. It is State Street's funding
policy to contribute annually the maximum amount that can be deducted for
Federal income tax purposes. Employees in non-U.S. offices participate in local
plans, and the cost of these plans is not material.
The following table sets forth the primary plan's funded status, actuarial
assumptions and amounts recognized in the consolidated financial statements as
of and for the years ended December 31:
(Dollars in thousands) 1993 1992 1991
Accumulated benefit obligation:
Vested $ 91,186 $ 77,331 $ 68,110
Nonvested 10,527 9,075 5,127
Additional benefits based on estimated future salary levels 12,465 10,738 10,233
Projected benefit obligation 114,178 97,144 83,470
Plan assets at fair value, primarily listed stocks and fixed income securities 162,690 148,102 147,033
Excess of plan assets over projected benefit obligation 48,512 50,958 63,563
Unrecognized net asset at transition being amortized over 17.2 years (19,771) (21,699) (23,627)
Unrecognized net gain (3,152) (4,291) (16,719)
Unrecognized prior service cost (3,770) (4,042) (4,313)
Total prepaid pension expense included in other assets $ 21,819 $ 20,926 $ 18,904
Pension expense (income) included the following components:
Service cost-benefits earned during period $ 10,030 $ 9,423 $ 7,672
Interest cost on projected benefit obligation 6,142 6,812 5,991
Actual return on plan assets (22,874) (8,306) (28,637)
Net amortization and deferral 5,809 (9,951) 9,625
Total pension income $ (893) $ (2,022) $ 5,349)
Actuarial assumptions:
Discount rate used to determine benefit obligation 7.50% 8.50% 9.00%
Rate of increase in future compensation level 5.00% 5.00% 6.00%
Expected long-term rate of return on plan assets 10.25% 10.25% 11.00%
State Street has an unfunded, non-qualified supplemental retirement plan that
provides certain officers with defined pension benefits in excess of limits
imposed by Federal tax law. At December 31, 1993, 1992 and 1991, the projected
benefit obligation of this plan was $2,790,000, $2,174,000 and $1,986,000, and
the related pension expense was $400,000, $430,000 and $95,000, respectively.
Total pension expense (income) for all plans was $2,050,000, $424,000 and
$(3,631,000) for 1993, 1992 and 1991, respectively.
Employees of State Street Bank and certain subsidiaries with one or more years
of service are eligible to contribute a portion of their pre-tax salary to a
401(k) Salary Savings Plan. State Street matches a portion of these
contributions, and the related expenses were $5,942,000, $4,796,000 and
$4,153,000 for 1993, 1992 and 1991, respectively.
State Street Bank and certain subsidiaries provide health care and life
insurance benefits for retired employees. In 1993, Statement of Financial
Accounting Standards No. 106, ``Employers' Accounting for Postretirement
Benefits Other than Pension,'' was adopted. This statement requires that the
costs associated with providing postretirement benefits be accrued during the
active service periods of the employee, rather than expensing these costs as
paid. State Street has elected to amortize the accumulated postretirement
benefit obligation (APBO), which at the date of adoption was $22,100,000, over a
20-year period. State Street continues to fund medical and life insurance
benefit costs on a pay-as-you go basis. In previous years, the cost of these
benefits was expensed as claims were paid and was not material.
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE N EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the financial status of the plan and amounts
recognized in the consolidated financial statements as of and for the year ended
December 31, 1993:
(Dollars in thousands) 1993
Accumulated postretirement benefit obligation:
Retirees $ 5,553
Fully eligible active employees 5,333
Other active employees 16,383
APBO 27,269
Unrecognized transition obligation (20,968)
Unrecognized net loss (2,969)
Accrued postretirement benefit cost $ 3,332
Postretirement expense included the following components:
Service cost-benefits earned during the period $ 1,491
Interest cost on APBO 1,835
Net amortization and deferral 1,104
Total postretirement expense $ 4,430
The discount rate used in determining the APBO was 7.5% and the assumed health
care cost trend rate used in measuring the APBO was 14% in 1994, declining to
6% by 2005, and remaining at 6% thereafter. If the health care trend rate
assumptions were increased by 1%, the APBO, as of December 31, 1993,
would have increased by 8%, and the aggregate of service and interest cost
for 1993 would have increased by 8%.
NOTE O INCOME TAXES
The provision for income taxes includes deferred income taxes arising as a
result of reporting certain items of revenue and expense in different years for
tax and financial reporting purposes. In 1993, State Street adopted Statement of
Financial Accounting Standards No. 109, ``Accounting for Income Taxes,'' which
prescribes the liability method of accounting for income taxes. The impact of
the adoption in 1993 was not material.
The provision for income taxes included in the Consolidated Statement of Income
consisted of the following:
(Dollars in thousands) 1993 1992 1991
Current:
Federal $22,572 $30,643 $39,060
State 16,665 19,799 26,444
Foreign 16,456 10,893 8,131
Total current 55,693 61,335 73,635
Deferred:
Federal 27,002 24,420 9,481
State 14,931 10,363 2,702
Total deferred 41,933 34,783 12,183
Total income taxes $97,626 $96,118 $85,818
Current and deferred taxes for 1991 and 1992 have been reclassified to reflect
the tax returns as actually filed. Income tax benefits of $3,603,000, $5,570,000
and $4,397,000 in 1993, 1992 and 1991, respectively, related to certain employee
stock option exercises were recorded directly to stockholders' equity and are
not included in the table above. Income taxes related to net securities gains
were $6,634,000, $5,118,000 and $1,412,000 for 1993, 1992 and 1991,
respectively.
Pre-tax income attributable to operations located outside the United States was
$51,823,000, $34,723,000 and $20,785,000 in 1993, 1992 and 1991, respectively.
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE O INCOME TAXES (CONTINUED)
Significant components of the deferred tax liabilities and assets were as
follows:
(Dollars in thousands) 1993
Deferred tax liabilities:
Lease financing transactions $217,713
Depreciation 11,647
Investment securities 8,777
Prepaid pension expense 8,155
Other 7,693
Total deferred tax liabilities 253,985
Deferred tax assets:
Operating expenses 26,682
Allowance for loan losses 22,516
Alternative minimum tax credit 11,589
Other 10,317
Total deferred tax assets 71,104
Valuation allowance for deferred tax assets (3,228)
Net deferred tax assets 67,876
Net deferred tax liabilities $186,109
At December 31, 1993, State Street had non-U.S. carryforward tax losses of
$10,659,000 and U.S. tax credit carryforwards of $11,589,000. If not utilized,
$6,413,000 of the losses will expire in the years 1995-2000. The credits
and the remaining losses carry over indefinitely.
The provision for deferred income taxes for the years ended December 31, 1992
and December 31, 1991 consisted of the following:
(Dollars in thousands) 1992 1991
Lease financing transactions $30,771 $16,413
Provision for loan losses 3,363 (6,305)
Other, net 649 2,075
Total deferred $34,783 $12,183
A reconciliation of the differences between the U.S. statutory income tax rate
and the effective tax rates based on income before taxes is as follows:
1993 1992 1991
U.S. Federal income tax rate 35.0% 34.0% 34.0%
Changes from statutory rate resulting from:
State taxes, net of Federal benefit 7.1 7.8 8.5
Tax exempt interest revenue,
net of disallowed interest (3.6) (3.1) (4.4)
Tax credits (3.6) (1.6) (.4)
Other, net .3 .4 .4
Effective tax rate 35.2% 37.5% 38.1%
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE P OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
State Street uses various off-balance sheet financial instruments to satisfy the
financing needs of customers, manage interest-rate and currency risk and conduct
trading activities. These instruments generate fee, interest or trading revenue.
Associated with these instruments are market and credit risks that could expose
State Street to potential losses.
Market risk relates to the possibility that financial instruments may change in
value due to future fluctuations in market prices. Credit risk relates to the
possibility that a loss may occur from the failure of another party to perform
according to the terms of a contract. The credit risk associated with off-
balance sheet financial instruments is managed in conjunction with State
Street's balance sheet activities. Historically, the credit losses experienced
with respect to these instruments have been immaterial.
The following is a summary of the contractual or notional amount of State
Street's off-balance sheet financial instruments:
(Dollars in millions) 1993 1992
Financial instruments whose contractual amounts represent
credit risk:
Loan commitments $ 2,356 $ 1,595
Standby letters of credit 799 471
Letters of credit 140 115
Indemnified securities lent 12,432 9,582
Financial instruments whose contractual or notional amount
exceeds the amount of credit risk:
Foreign exchange commitments 36,179 16,737
Interest-rate contracts:
Futures 691 72
Swap agreements 158 265
In conjunction with its lending activities, State Street enters into various
commitments to extend credit and issues letters of credit. Loan commitments
(unfunded loans and unused lines of credit), standby letters of credit and
letters of credit are issued to accommodate the financing needs of State
Street's customers. Loan commitments are essentially agreements by State Street
to lend monies at a future date, so long as there are no violations of any
conditions established in the agreement. Standby letters of credit and letters
of credit commit State Street to make payments on behalf of customers when
certain specified events occur.
These loan and letter-of-credit commitments are subject to the same credit
policies and reviews as loans on the balance sheet. Collateral, both the amount
and nature, is obtained based upon management's assessment of the credit risk.
Approximately 70% of the loan commitments expire in one year or less from the
date of issue. Since many of the extensions of credit are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
On behalf of its customers, State Street lends their securities to creditworthy
brokers and other institutions. In certain circumstances, State Street
indemnifies its customers for the fair market value of those securities against
a failure of the borrower to return such securities. State Street requires the
borrowers to provide collateral in an amount equal to or in excess of 102% of
the fair market value of the securities borrowed. The borrowed securities are
revalued daily to determine if additional collateral is necessary. State Street
held as collateral, cash and U.S. Government securities totaling $12.8 billion
and $9.8 billion for indemnified securities at December 31, 1993 and 1992,
respectively.
State Street enters into a variety of foreign exchange and interest-rate
contracts with counterparties that may expose it to currency and interest-rate
risk on behalf of its customers, in managing its own exposure and through
trading activities. Foreign exchange and interest-rate futures contracts are
commitments to buy or sell at a future date a currency or financial instrument
at a contracted price, and may be settled in cash or through delivery of the
contracted instrument. Interest-rate swap agreements involve the exchange of
interest payments, either at a fixed or variable rate, based on a notional
amount without the exchange of the underlying principal amount.
State Street's exposure from these foreign exchange and interest-rate contracts
results from the possibility that one party may default on its contractual
obligation or from movements in exchange or interest rates. The exposure to
credit loss can be estimated by calculating the cost, on a present value basis,
to replace at current market rates all profitable contracts outstanding at year-
end. State Street minimizes its credit risk in this area by performing credit
reviews of its counterparties and by conducting its activities through organized
exchanges. There may be considerable day-to-day variation in exposure because of
changing expectations of future currency values or interest rates. State Street
actively manages its market risk exposure.
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE Q CONTINGENT LIABILITIES
State Street provides custody, accounting and information services to mutual
fund, master trust/master custody/global custody, corporate trust and defined
contribution plan customers; and investment management services to institutions
and individuals. Assets under custody and management, held by State Street in a
fiduciary or custody capacity, are not included in the Consolidated Statement
of Condition since such items are not assets of State Street. Management
conducts regular reviews of its responsibilities for these services and
considers the results in preparing its financial statements. In the opinion of
management, there are no contingent liabilities at December 31, 1993 that would
have a material adverse effect on State Street's financial position or results
of operations.
State Street is subject to pending and threatened legal actions that arise in
the normal course of business. In the opinion of management, after discussion
with counsel, these can be successfully defended or resolved without a material
adverse effect on State Street's financial position or results of operations.
NOTE R CASH, DIVIDEND AND LOAN RESTRICTIONS
During 1993, subsidiary banks of State Street were required by the Federal
Reserve Bank to maintain average reserve balances of $221,941,000.
State Street's principal source of funds for the payment of cash dividends to
stockholders is from dividends paid by State Street Bank. Federal and state
banking regulations place certain restrictions on dividends paid by subsidiary
banks to State Street. At December 31, 1993, State Street Bank had $366,454,000
of retained earnings available for distribution to State Street in the form of
dividends.
The Federal Reserve Act requires that extensions of credit by State Street Bank
to certain affiliates, including State Street, be secured by specific
collateral, that the extension of credit to any one affiliate be limited to
10% of capital and surplus (as defined), and that extensions of credit to all
such affiliates be limited to 20% of capital and surplus.
At December 31, 1993, consolidated retained earnings included $4,847,000 of
undistributed earnings of Boston Financial Data Services, Inc., a 50%-owned
affiliate.
NOTE S FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards No. 107 requires the calculation and disclosure
of the fair value of financial instruments.
The short maturity of State Street's assets and liabilities results in having a
significant number of financial instruments whose fair value equals or closely
approximates reported book value. The following methods were used to estimate
the fair value of financial instruments.
For financial instruments that have quoted market prices, those quotes were used
to determine fair value. Financial instruments that have no defined maturity,
have a remaining maturity of 180 days or less, or reprice frequently to a market
rate, are assumed to have a fair value that approximates reported book value,
after taking into consideration any applicable credit risk. If no market quotes
were available, financial instruments were valued by discounting the expected
cash flow(s) using an estimated current market interest rate for the financial
instrument.
Fair value approximates reported book value for the following balance sheet
captions: Cash and due from banks; Interest-bearing deposits with banks;
Securities purchased under resale agreements; Federal funds sold; Deposits;
Federal funds purchased; Securities sold under repurchase agreements; and Other
short-term borrowings.
The reported book value and fair value for other balance sheet captions are as
follows:
1993 1992
BOOK FAIR Book Fair
(Dollars in millions) VALUE VALUE Value Value
Investment securities $5,701 $5,729 $4,092 $4,147
Net loans (excluding leases) 2,300 2,301 1,696 1,697
Notes payable 150 150 336 339
Long-term debt 129 133 146 152
The fair value of off-balance sheet financial instruments is measured by
determining the cost to close out the contract. The cost for interest-rate
swap agreements is $1 million for 1993 and $4 million for 1992. There is no
cost for loan commitments.
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE T FOREIGN ACTIVITIES
Foreign activities, as defined by the Securities and Exchange Commission, are
considered to be those revenue-producing assets and transactions that arise
from customers domiciled outside the United States.
Due to the nature of the Corporation's business, it is not possible to segregate
precisely domestic and foreign activities. The determination of earnings
attributable to foreign activities requires internal allocations for resources
common to foreign and domestic activities. Subjective judgments have been used
to arrive at these operating results for foreign activities. Interest expense
allocations are based on the average cost of short-term domestic borrowed
funds. Allocations for operating expenses and certain administrative costs are
based on services provided and received.
The following data relates to foreign activities, based on the domicile location
of customers, for the years ended and as of December 31:
(Dollars in thousands) 1993 1992 1991
Condensed Statement of Income:
Interest revenue $ 226,213 $ 264,589 $ 277,426
Interest expense 158,392 209,094 231,646
Net interest revenue 67,821 55,495 45,780
Provision for loan losses 1,073 467 23
Fee revenue 129,942 107,350 79,769
Total revenue 196,690 162,378 125,526
Operating expenses 140,492 117,887 82,859
Net income before taxes 56,198 44,491 42,667
Income taxes 22,171 20,380 20,604
Net Income $ 34,027 $ 24,111 $ 22,063
Assets:
Interest-bearing deposits with banks $5,148,201 $4,803,196 $3,830,803
Loans and other assets 645,579 253,896 175,515
Total Assets $5,793,780 $5,057,092 $4,006,318
NOTE U FINANCIAL STATEMENTS OF STATE STREET BOSTON CORPORATION (PARENT ONLY)
Statement of Condition
(Dollars in thousands) December 31, 1993 1992
Assets
Cash and due from banks $ 454 $ 80
Securities purchased under resale agreements 65,068 28,578
Investment securities - available for sale 35,030 35,161
Investment in consolidated subsidiaries:
Bank 1,067,080 931,669
Nonbank 39,940 37,290
Investment in unconsolidated affiliate 11,364 9,698
Capital notes of bank subsidiary 18,211 18,211
Notes receivable from nonbank subsidiaries 7,687 5,286
Other assets 2,383 1,996
Total Assets $1,247,217 $1,067,969
Liabilities
Accrued taxes and other expenses $27,985 $24,546
Other liabilities 10,624 9,007
Long-term debt 103,634 81,281
Total Liabilities 142,243 114,834
Stockholders' Equity 1,104,974 953,135
Total Liabilities and Stockholders' Equity $1,247,217 $1,067,969
NOTES TO FINANCIAL STATEMENTS
State Street Boston Corporation
NOTE U FINANCIAL STATEMENTS OF STATE STREET BOSTON CORPORATION (PARENT ONLY)
(CONTINUED)
Statement of Income
(Dollars in thousands) 1993 1992 1991
Dividends from bank subsidiary $ 46,400 $ 28,500 $ 32,000
Dividends and interest revenue 4,228 5,208 6,329
Fee revenue 201
Gain on sale of credit card loan portfolio - Note J 9,993
Total revenue 50,628 33,909 48,322
Interest on long-term debt 7,276 6,926 7,106
Other expenses 1,678 1,543 1,265
Total expenses 8,954 8,469 8,371
Income tax expense (benefit) (1,873) (1,544) 2,958
Income before equity in undistributed income of subsidiaries 43,547 26,984 36,993
Equity in undistributed income of subsidiaries and affiliate:
Consolidated bank 132,688 132,464 101,303
Consolidated nonbank 1,528 791 916
Unconsolidated affiliate 2,066 204 58
136,282 133,459 102,277
Net Income $179,829 $160,443 $139,270
Statement of Cash Flows
(Dollars in thousands) 1993 1992 1991
Operating Activities
Net income $179,829 $160,443 $139,270
Equity in undistributed income of subsidiaries and affiliate (136,282) (133,459) (102,277)
Other, net 5,403 8,273 15,452
Net Cash Provided by Operating Activities 48,950 35,257 52,445
Investing Activities
Net (payments for) proceeds from:
Investment in bank subsidiary (40,500)
Investment in nonbank subsidiary (1,000)
Securities purchased under resale agreement (36,491) 37,774 2,192
Investment securities (5,135) (20,444)
Notes receivable from nonbank subsidiaries (2,248) 500 500
Other, net 400 (548) (9,490)
Net Cash Used by Investing Activities (39,339) (7,909) (27,242)
Financing Activities
Proceeds from issuance of long-term debt 99,025
Payment of long-term debt (75,000)
Proceeds from issuance of common and treasury stock 6,035 5,810 3,261
Payments for cash dividends (39,297) (33,293) (28,415)
Net Cash Used by Financing Activities (9,237) (27,483) (25,154)
Net Increase (Decrease) 374 (135) 49
Cash and due from banks at beginning of period 80 215 166
Cash and Due from Banks at End of Period $ 454 $ 80 $ 215
REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors
State Street Boston Corporation
We have audited the accompanying consolidated statements of condition of State
Street Boston Corporation as of December 31, 1993 and 1992, and the related
consolidated statements of income, cash flows and changes in stockholders'
equity for each of the three years in the period ended December 31, 1993. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of State Street
Boston Corporation at December 31, 1993 and 1992, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1993, in conformity with generally accepted accounting
principles.
/s/Ernst & Young
Boston, Massachusetts
January 13, 1994
SUPPLEMENTAL FINANCIAL DATA
State Street Boston Corporation
CONDENSED AVERAGE STATEMENT OF CONDITION WITH NET INTEREST REVENUE ANALYSIS
(TAXABLE EQUIVALENT BASIS) 1993
AVERAGE AVERAGE
(Dollars in millions) BALANCE INTEREST RATE
ASSETS
Interest-bearing deposits with banks $ 5,022 $201.6 4.01%
Securities purchased under resale agreements 3,255 102.4 3.14
Federal funds sold 413 12.6 3.06
Trading account assets 369 15.6 4.21
Investment securities:
U.S. Treasury and Federal agencies 2,077 119.5 5.75
State and political subdivisions 683 37.8 5.54
Other investments 1,827 97.4 5.33
Total investment securities 4,587 254.7 5.55
Loans:
Commercial and financial 1,865 89.8 4.81
Real estate 97 6.8 6.97
Consumer 53 3.6 6.81
Foreign 282 16.4 5.82
Lease financing 279 15.7 5.61
Total loans 2,576 132.3 5.14
TOTAL INTEREST-EARNING ASSETS 16,222 719.2 4.43
Cash and due from banks 911
Allowance for loan losses (58)
Premises and equipment 435
Customers' acceptance liability 33
Other assets 626
TOTAL ASSETS $18,169
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings $ 2,167 52.2 2.41
Time 157 4.5 2.88
Foreign 4,954 146.1 2.95
Total interest-bearing deposits 7,278 202.8 2.79
Federal funds purchased 741 21.0 2.84
Securities sold under repurchase agreements 4,134 119.4 2.89
Other short-term borrowings 216 8.2 3.78
Notes payable 511 19.9 3.90
Long-term debt 122 10.0 8.19
TOTAL INTEREST-BEARING LIABILITIES 13,002 381.3 2.93
Noninterest-bearing deposits 3,623
Acceptances outstanding 34
Other liabilities 477
Stockholders' equity 1,033
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,169
Net interest revenue $337.9
Excess of rate earned over rate paid 1.50%
NET INTEREST MARGIN*<F1> 2.08%
<FN>
<F1>*Net interest margin is taxable equivalent net interest revenue divided by average
interest-earning assets.
1992 1991 1990 1989
Average Average Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate
$ 5,102 $257.7 5.05% $ 3,646 $262.1 7.19% $ 2,733 $252.7 9.25% $ 1,389 $137.2 9.88%
2,603 97.6 3.75 913 51.4 5.63 246 20.0 8.12 149 13.1 8.98
330 11.6 3.51 305 17.8 5.83 470 38.2 8.14 484 45.0 9.24
226 10.1 4.45 152 11.9 7.80 129 12.5 9.60 110 9.9 9.03
1,703 115.7 6.80 1,417 115.6 8.16 1,634 138.4 8.47 1,706 137.4 8.06
376 29.0 7.72 378 34.4 9.09 338 32.1 9.51 227 20.5 9.06
1,444 87.9 6.09 1,212 100.8 8.32 776 70.8 9.13 421 38.8 9.21
3,523 232.6 6.60 3,007 250.8 8.34 2,748 241.3 8.78 2,354 196.7 8.36
1,556 87.7 5.64 1,583 124.7 7.88 1,590 152.0 9.56 1,498 149.6 9.99
114 8.1 7.11 144 12.2 8.47 216 20.2 9.35 245 27.0 11.02
66 5.0 7.65 90 9.3 10.39 521 82.5 15.85 463 68.2 14.74
117 7.1 6.08 87 6.5 7.43 100 8.6 8.58 88 7.0 8.00
217 10.5 4.84 204 9.9 4.84 194 10.3 5.31 173 10.1 5.83
2,070 118.4 5.72 2,108 162.6 7.72 2,621 273.6 10.44 2,467 261.9 10.61
13,854 728.0 5.26 10,131 756.6 7.47 8,947 838.3 9.37 6,953 663.8 9.55
819 775 743 599
(67) (64) (56) (52)
359 269 198 170
52 61 33 70
485 402 368 349
$15,502 $11,574 $10,233 $ 8,089
$ 2,154 68.0 3.16 $ 1,819 94.9 5.22 $ 1,370 96.8 7.05 $ 951 74.3 7.81
162 6.3 3.86 307 18.5 6.00 347 28.1 8.10 356 31.8 8.94
3,955 174.6 4.42 2,648 173.4 6.55 2,223 189.3 8.52 1,096 104.5 9.53
6,271 248.9 3.97 4,774 286.8 6.01 3,940 314.2 7.97 2,403 210.6 8.76
919 30.8 3.35 837 45.9 5.48 828 65.6 7.93 377 33.9 8.99
3,290 112.4 3.42 1,766 89.8 5.08 1,703 128.4 7.54 1,733 147.9 8.53
194 8.3 4.27 156 8.3 5.29 125 9.1 7.28 135 11.8 8.76
389 18.4 4.74 234 20.3 8.69 200 19.4 9.72 178 17.1 9.62
146 13.3 9.10 146 13.2 9.04 114 10.0 8.70 117 10.0 8.59
11,209 432.1 3.85 7,913 464.3 5.87 6,910 546.7 7.91 4,943 431.3 8.73
2,952 2,460 2,301 2,218
52 61 33 71
402 367 342 302
887 773 647 555
$15,502 $11,574 $10,233 $ 8,089
$295.9 $292.3 $291.6 $232.5
1.41% 1.60% 1.46% .82%
2.14% 2.89% 3.26% 3.34%