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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 COMMISSION FILE NO. 0-5108
STATE STREET BOSTON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2456637
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICE)
617-786-3000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK, $1 PAR VALUE
(TITLE OF CLASS)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
----------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S COMMON STOCK HELD BY NON-
AFFILIATES (PERSONS OTHER THAN DIRECTORS AND EXECUTIVE OFFICERS) OF THE
REGISTRANT ON FEBRUARY 28, 1995 WAS $2,610,805,000.
THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING ON
FEBRUARY 28, 1995 WAS 82,578,160.
PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED INTO THE PARTS OF THIS
REPORT ON FORM 10-K INDICATED BELOW:
(1) ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1994
(PARTS I AND II) AND
(2) THE REGISTRANT'S DEFINITIVE PROXY STATEMENT DATED MARCH 14, 1995 (PART
III)
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
State Street Boston Corporation ("State Street") is a bank holding company
organized under the laws of the Commonwealth of Massachusetts.
State Street was organized in 1970 and conducts its business principally
through its subsidiary, State Street Bank and Trust Company ("State Street
Bank"), which traces its beginnings to the founding of the Union Bank in 1792.
The charter under which State Street Bank now operates was authorized by a
special act of the Massachusetts Legislature in 1891, and its present name was
adopted in 1960.
State Street is the fourth largest provider of trust services in the United
States as ranked on the basis of 1993 fiduciary compensation. State Street had
more than $1.6 trillion of assets under custody, $210 billion of bonds under
trusteeship, and $160 billion of assets under management at year- end 1994.
Ranked on the basis of balance sheet assets as of June 1994, State Street Bank
is the 23rd largest commercial bank in the United States. State Street's total
assets were $21.7 billion at December 31, 1994, of which $16.0 billion, or 74%,
were investment securities and money market assets and $3.2 billion, or 15%,
were loans.
Services are provided from offices in the United States, as well as from
offices in Canada, Grand Cayman, Netherland Antilles, the United Kingdom,
France, Belgium, Luxembourg, Denmark, Germany, United Arab Emirates, Hong Kong,
Taiwan, Japan, Australia, and New Zealand. State Street's executive offices are
located at 225 Franklin Street, Boston, Massachusetts. For information as to
foreign activities, refer to Note T to the Notes to Financial Statements.
LINES OF BUSINESS
State Street has three lines of business: financial asset services,
investment management and commercial lending. In 1994, 72% of net income came
from the broad and growing array of financial asset services, 16% of net income
came from investment management and 18% came from commercial lending. Corporate
items reduced net income by 6%.
FINANCIAL ASSET SERVICES
Financial asset services are primarily accounting, custody and other
services for large pools of assets such as mutual funds and pension plans, both
defined benefit and defined contribution, and corporate trusteeship. A broad
array of other services is provided, including accounting, custody, information
services and recordkeeping. Also provided are banking functions of accepting
deposits, making loans and trading foreign exchange.
With $675 billion of mutual fund assets under custody, State Street is the
leading mutual fund custodian in the United States, servicing 36% of the
registered funds. State Street began providing mutual fund services in 1924 and
servicing pension assets in 1974. Customers who sponsor the 2,200 U.S. mutual
funds that State Street services include investment companies, broker/ dealers,
insurance companies and others. In addition, State Street services 252 offshore
mutual funds and collective investment funds in other countries.
State Street's mutual fund services include a full array of services
including custody, portfolio and general ledger accounting, pricing, fund
administration and information services. Shareholder accounting is provided
through a 50%-owned affiliate.
Servicing $664 billion of pension and other assets for North American
customers, State Street is ranked as the largest servicer of tax-exempt assets
for corporations and public funds in the United States and the largest global
custodian for U.S. pension assets. Services include portfolio accounting,
securities custody, securitieslending, and other related services for retirement
and other financial assets of benefit pension plans, unions, endowments,
foundations, and nuclear decommissioning trusts. In addition, State Street
provides global and domestic custody-related services for $72.2 billion in
assets for customers outside North America.
State Street acts as participant recordkeeper, securities custodian and
trustee for defined contribution plans, such as 401(k) plans and ESOPs, and
issues checks for employee benefit distributions. Corporate trust services for
asset-backed securities, corporate securities, leveraged leases, and municipal
securities are provided to investment banks, corporations, municipalities and
government agencies from five offices in the United States. At year ended 1994,
bonds under trusteeship totaled $210 billion.
State Street is a mortgage subservicer through Wendover Funding, Inc. in
Greensboro, North Carolina. State Street also provides card replacement and
other services for a bank card association, processing of unclaimed securities
for state governments, and accounting services for retained assets accounts of
insurance companies.
State Street provides foreign exchange trading and global cash management
services to financial institutions and corporations. Funds are gathered in the
form of domestic and foreign deposits, federal funds and securities sold under
repurchase agreements from local, national and international sources. Trading
and arbitrage operations are conducted with government securities, futures and
options. Municipal dealer activities include underwriting, trading and
distribution of general obligation tax-exempt bonds and notes. Treasury centers
are located in Boston, London, Hong Kong, Tokyo, Sydney, Munich and Luxembourg.
State Street also provides corporate finance services, including private
placement of debt and equity, acquisitions and divestitures and project finance.
INVESTMENT MANAGEMENT
State Street was a pioneer in the development of domestic and international
index funds through State Street Global Advisors ("SSGA"). The products now
offered by SSGA include enhanced index and fully-active equity strategies,
short-term investment funds and fixed income products. These products are sold
and managed both domestically and from locations outside the United States.
State Street is ranked as the largest manager of internationally-indexed assets
and the second largest manager of tax-exempt money in the United States. State
Street is a leading New England trustee and money manager for individuals, and
provides planned gift management services for non-profit organizations
throughout the United States. At year-end 1994, institutional and personal trust
assets under management totaled $160 billion.
COMMERCIAL LENDING
State Street provides corporate banking, specialized lending and
international banking to business and financial institutions. One-third of the
loan portfolio supports the short-term needs of financial asset services
customers and securities brokers in conjunction with their trading and
settlement activity. Corporate banking services are offered primarily to middle
market companies in the Northeast. Specialized Lending is both regional and
national, with specialities that include cable television, technology- based
companies, publishing, law firms, non-profit institutions, broker/ dealers and
other financial institutions. In addition, State Street offers asset-based
finance, leasing, real estate, and trade finance. Trade finance includes letters
of credit, collection, payment and other specialized services for importers and
exporters.
SELECTED STATISTICAL INFORMATION
The following tables contain State Street's consolidated statistical
information relating to, and should be read in conjunction with, the
consolidated financial statements. Additionally, certain previously reported
amounts have been reclassified to conform to the present method of presentation.
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The average statements of condition and net interest revenue analysis for
the years indicated are presented below.
1994 1993 1992
---------------------------------- ---------------------------------- ----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------- ------- -------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)
ASSETS
Interest-bearing
deposits with
banks<F1>............ $ 5,182,074 $209,246 4.04% $ 5,021,752 $201,453 4.01% $ 5,101,515 $257,615 5.05%
Securities purchased
under resale
agreements and
securities
borrowed ............ 3,079,357 131,156 4.26 3,255,014 102,338 3.14 2,602,740 97,570 3.75
Federal funds sold .... 301,121 12,929 4.29 413,601 12,642 3.06 330,019 11,579 3.51
Trading account assets 479,962 24,289 5.06 369,050 15,551 4.21 226,290 10,081 4.45
Investment securities:
U.S. Treasury and
Federal agencies .. 3,286,660 177,790 5.41 2,076,758 119,495 5.75 1,703,026 115,745 6.80
State and political
subdivisions ...... 1,088,116 55,346 5.09 682,856 37,823 5.54 375,972 28,998 7.72
Other investments ... 2,365,200 127,844 5.41 1,826,568 97,383 5.33 1,443,628 87,963 6.09
Loans<F2>:
Domestic ............ 2,728,849 145,609 5.34 2,261,915 113,272 5.01 1,952,638 111,329 5.70
Foreign ............. 672,509 44,091 6.56 314,122 19,137 6.09 117,707 7,156 6.08
------------ --------- ------------ --------- ------------ ---------
Total interest-
earning assets .... 19,183,848 928,300 4.84 16,221,636 719,094 4.43 13,853,535 728,036 5.26
--------- --------- ---------
Cash and due from banks 1,195,275 911,082 818,991
Allowance for loan
losses .............. (58,089) (57,522) (66,767)
Premises and equipment 462,005 435,475 358,895
Customers' acceptance
liability<F3> ....... 29,580 33,363 51,745
Other assets .......... 1,089,909 625,133 485,720
------------ ------------ ------------
Total Assets ........ $21,902,528 $18,169,167 $15,502,119
============ ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings ............. $ 1,873,656 54,902 2.93 $ 2,166,996 52,175 2.41 $ 2,153,699 67,967 3.16
Time ................ 118,855 4,184 3.52 157,481 4,531 2.88 162,464 6,265 3.86
Foreign ............. 7,391,751 215,840 2.92 4,953,696 146,051 2.95 3,954,528 174,615 4.42
Federal funds purchased 410,784 16,019 3.90 741,082 21,023 2.84 919,109 30,818 3.35
Securities sold under
repurchase
agreements .......... 4,927,445 200,939 4.08 4,133,726 119,300 2.89 3,290,196 112,407 3.42
Other short-term
borrowings .......... 563,221 24,777 4.40 215,948 8,156 3.78 193,927 8,281 4.27
Notes payable ......... 258,252 11,979 4.64 510,719 19,943 3.90 388,513 18,400 4.74
Long-term debt ........ 128,130 8,625 6.73 122,403 10,023 8.19 146,394 13,327 9.10
------------ --------- ------------ --------- ------------ ---------
Total interest-
bearing liabilities 15,672,094 537,265 3.43 13,002,051 381,202 2.93 11,208,830 432,080 3.85
--------- ----- --------- ----- --------- -----
Noninterest-bearing
deposits ............ 4,154,436 3,622,849 2,952,363
Acceptances outstanding
(3) ................. 30,098 33,956 52,423
Other liabilities ..... 863,425 477,640 401,953
Stockholders' equity .. 1,182,475 1,032,671 886,550
------------ ------------ ------------
Total Liabilities and
Stockholders'
Equity ............ $21,902,528 $18,169,167 $15,502,119
============ ============ ============
Net interest revenue $391,035 $337,892 $295,956
========= ========= =========
Excess of rate earned
over
rate paid ......... 1.41% 1.50% 1.41%
===== ===== =====
Net Interest Margin<F4> 2.04% 2.08% 2.14%
===== ===== =====
----------
<FN>
<F1>Amounts reported were with non-U.S. domiciled offices of other banks.
<F2>Non-accrual loans are included in the average loan amounts outstanding.
<F3>In 1994, 1993 and 1992, 43%, 13% and 9% of acceptances were foreign.
<F4>Net interest margin is taxable equivalent net interest revenue divided by total average interest-earning assets.
Interest revenue on non-taxable investment securities and loans includes
the effect of taxable-equivalent adjustments, using a Federal income tax rate of
35% in 1994 and 1993, and 34% in 1992, adjusted for applicable state income
taxes net of the related Federal tax benefit.
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (CONTINUED)
The table below summarizes changes in interest revenue and interest expense
due to changes in volume of interest-earning assets and interest- bearing
liabilities, and changes in interest rates. Changes attributed to both volume
and rate have been allocated based on the proportion of change in each category.
1994 COMPARED TO 1993 1993 COMPARED TO 1992
--------------------------------------------- ---------------------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO NET DUE TO NET
---------------------------- INCREASE ---------------------------- INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
------ ---- ---------- ------ ---- ----------
(DOLLARS IN THOUSANDS)
Interest revenue related to:
Interest-bearing deposits
with banks ............... $ 6,465 $ 1,327 $ 7,792 $ (3,971) $ (52,191) $ (56,162)
Securities purchased under
resale agreements and
securities borrowed ...... (5,778) 34,596 28,818 22,047 (17,279) 4,768
Federal funds sold ......... (3,994) 4,281 287 2,684 (1,621) 1,063
Trading account assets ..... 5,237 3,501 8,738 6,044 (574) 5,470
Investment securities:
U.S. Treasury and Federal
agencies ............... 65,824 (7,529) 58,295 23,101 (19,351) 3,750
State and political
subdivisions ........... 20,833 (3,310) 17,523 18,732 (9,907) 8,825
Other investments ........ 29,132 1,504 30,461 21,349 (11,929) 9,420
Loans:
Domestic ................. 24,547 7,790 32,337 16,410 (14,467) 1,943
Foreign .................. 23,397 1,557 24,954 11,966 15 11,981
------- ------- ------- ------- ------- -------
Total interest-earning
assets ................. 165,663 43,717 209,205 118,362 (127,304) (8,942)
------- ------- ------- ------- ------- -------
Interest expense related to:
Deposits:
Savings ................ (7,646) 10,373 2,727 417 (16,209) (15,792)
Time ................... (1,240) 894 (346) (187) (1,547) (1,734)
Foreign ................ 71,316 (1,187) 69,789 37,815 (66,379) (28,564)
Federal funds purchased .... (11,265) 6,261 (5,004) (5,455) (4,341) (9,796)
Securities sold under
repurchase agreements .... 25,929 55,611 81,639 26,045 (19,151) 6,894
Other short-term borrowings 15,083 1,538 16,621 886 (1,012) (126)
Notes payable .............. (11,192) 3,228 (7,964) 5,138 (3,595) 1,543
Long-term debt ............. 452 (1,850) (1,398) (2,048) (1,255) (3,303)
------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities .............. 81,437 74,868 156,064 62,611 (113,489) (50,878)
------- ------- ------- ------- ------- -------
Net Interest Revenue ..... $ 84,226 $(31,151) $ 53,141 $ 55,751 $ (13,815) $ 41,936
======= ======= ======= ======= ======= =======
RETURN ON EQUITY AND ASSETS AND CAPITAL RATIOS
The return on equity, return on assets, dividend payout ratio, equity to
assets ratio and capital ratios for the years ended December 31, were as
follows:
1994 1993 1992
---- ---- ----
Net income to:
Average stockholders' equity ..... 17.5% 17.4% 18.1%
Average total assets ............. .95 .99 1.03
Dividends declared to net income ... 22.1 21.9 20.8
Average equity to average assets ... 5.4 5.7 5.7
Risk-based capital ratios:
Tier 1 capital ................... 12.8 12.1 13.2
Total capital .................... 13.4 12.7 14.6
INVESTMENT PORTFOLIO
State Street adopted Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity Securities," on
January 1, 1994. Under SFAS No. 115, debt securities for which State Street has
the intent and ability to hold to maturity may be classified as held-to-
maturity securities and reported at amortized cost. Securities that are not
classified as held to maturity are to be classified as available-for-sale
securities and reported at fair value. Investment securities consisted of the
following at December 31:
1994 1993 1992
---- ---- ----
(DOLLARS IN MILLIONS)
HELD TO MATURITY (at amortized cost)
U.S. Treasury and Federal agencies .. $1,669 $1,272 $ 996
State and political subdivisions .... 1,130 1,084 451
Asset-backed securities ............. 2,347 2,028 1,618
Other investments ................... 41 100 87
----- ----- -----
Total ........................... $5,187 $4,484 $3,152
===== ===== =====
AVAILABLE FOR SALE (at fair value *)
U.S. Treasuries ..................... $3,148 $1,122 $ 940
Other investments ................... 79 95
----- ----- -----
Total ........................... $3,227 $1,217 $ 940
===== ===== =====
* In 1993 and 1992, at lower of cost or market
The maturities of investment securities at December 31, 1994 and the
weighted average yields (fully taxable equivalent basis) were as follows:
MATURING
----------------------------------------------------------------------------------------------
AFTER ONE AFTER FIVE
ONE YEAR BUT WITHIN BUT WITHIN AFTER
OR LESS FIVE YEARS TEN YEARS TEN YEARS
---------------------- ---------------------- ---------------------- ----------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN MILLIONS)
HELD TO MATURITY
U.S. Treasury and
Federal agencies .................. $ 715 5.51% $ 824 5.62% $ 68 6.08% $ 62 6.08%
State and political
subdivisions ...................... 549 6.54 406 5.91 159 4.91 17 9.21
Asset-backed securities ............. 1,315 5.91 864 5.95 105 5.97 62 5.97
Other investments ................... 37 2.32 3 6.06 1 5.00
----- ----- ---- ----
Total ........................... $2,616 $2,097 $333 $141
===== ===== ==== ====
AVAILABLE FOR SALE
U.S. Treasury ....................... $ 98 4.20% $3,051 5.83%
Other investments ................... 55 5.89 23 6.74
----- -----
Total ........................... $ 153 $3,074
===== =====
LOAN PORTFOLIO
Domestic and foreign loans at December 31 and average loans outstanding for
the years ended December 31, were as follows:
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Domestic:
Commercial and financial . $2,070,145 $1,889,143 $1,519,037 $1,411,994 $1,539,069
Real estate .............. 100,549 94,073 105,156 128,376 173,530
Consumer ................. 41,323 46,315 64,841 75,366 94,680
Lease financing .......... 341,640 254,525 251,761 211,350 199,392
-------------- -------------- -------------- -------------- --------------
Total domestic ......... 2,553,657 2,284,056 1,940,795 1,827,086 2,006,671
-------------- -------------- -------------- -------------- --------------
Foreign:
Commercial and industrial 510,638 295,716 50,838 67,622 55,500
Banks and other financial 52,597 25,940 8,838 7,495 38,141
institutions ...............
Government and official 1,000 1,000 1,000 1,000 1,000
institutions ...............
Lease financing .......... 110,055 70,976
Other .................... 5,274 2,486 2,242 2,112 3,762
-------------- -------------- -------------- -------------- --------------
Total foreign .......... 679,564 396,118 62,918 78,229 98,403
-------------- -------------- -------------- -------------- --------------
Total loans ............ $3,233,221 $2,680,174 $2,003,713 $1,905,315 $2,105,074
============== ============== ============== ============== ==============
Average loans outstanding .. $3,401,358 $2,576,037 $2,070,345 $2,107,388 $2,621,429
============== ============== ============== ============== ==============
Selected loan maturities at December 31, 1994 were as follows:
AFTER ONE
ONE YEAR BUT WITHIN AFTER
OR LESS FIVE YEARS FIVE YEARS
-------- ---------- ----------
(DOLLARS IN THOUSANDS)
Commercial and financial .......................................... $1,659,317 $261,137 $149,691
Real estate ....................................................... 51,059 38,798 10,692
Foreign ........................................................... 554,709 9,006 115,849
The following table shows the classification of the above loans due after one year according to sensitivity to changes in
interest rates:
(DOLLARS IN THOUSANDS)
Loans with predetermined interest rates .................................... $235,114
Loans with floating or adjustable interest rates ........................... 350,059
-------
Total .................................................................. $585,173
========
Loans are evaluated on an individual basis to determine the appropriateness
of renewing each loan. State Street does not have a general rollover policy.
Unearned revenue included in loans was $4,112,000 and $4,423,000 at December 31,
1994 and 1993, respectively.
NON-ACCRUAL LOANS
It is State Street's policy to place loans on a non-accrual basis when they
become 60 days past due as to either principal or interest, or when in the
opinion of management, full collection of principal or interest is unlikely.
When the loan is placed on non-accrual, the accrual of interest is discontinued
and previously recorded but unpaid interest is reversed and charged against
current earnings. Past due loans are loans on which principal or interest
payments are over 90 days delinquent, but where interest continues to be
accrued.
NON-ACCRUAL LOANS (CONTINUED)
The following schedule discloses information concerning non-accrual and
past due loans:
DECEMBER 31
-------------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Non-accrual:
Domestic ............................. $23,043 $26,804 $39,954 $39,620 $54,273
Foreign .............................. 323 1,337 2,206
------- ------- ------- ------- -------
Total non-accrual .................. $23,043 $26,804 $40,277 $40,957 $56,479
======= ======= ======= ======= =======
Past due:
Domestic ............................. $ 41 $ 86 $ 288 $ 44 $ 2,590
Foreign .............................. 65 507 88
------- ------- ------- ------- -------
Total past due ..................... $ 41 $ 86 $ 353 $ 551 $ 2,678
======= ======= ======= ======= =======
The interest revenue for 1994 which would have been recorded related to
these non-accrual loans is $2,245,000 for domestic loans. The interest revenue
that was recorded on these non-accrual loans was $834,000, all of which relates
to domestic loans.
A loan totaling $2,703,000 was restructured in 1994, is performing in
accordance with its new terms and is accruing at a market rate.
ALLOWANCE FOR LOAN LOSSES
The changes in the allowance for loan losses for the years ended December
31, were as follows:
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Balance at beginning of year:
Domestic ............................. $50,968 $56,987 $64,323 $49,007 $48,958
Foreign .............................. 3,348 944 1,565 1,968 1,347
------- ------- ------- ------- -------
Total allowance for loan losses .... 54,316 57,931 65,888 50,975 50,305
------- ------- ------- ------- -------
Provision (credit) for loan losses:
Domestic ............................. 9,485 10,247 11,734 59,989 43,746
Foreign .............................. 2,084 1,073 467 23 1,915
------- ------- ------- ------- -------
Total provision for loan losses .... 11,569 11,320 12,201 60,012 45,661
------- ------- ------- ------- -------
Loan charge-offs:
Commercial and financial ............. 10,189 15,241 9,794 33,687 12,266
Real estate construction ............. 20 4,753 6,315 6,680
Real estate mortgage ................. 1,607 5,800 4,625 2,599
Consumer ............................. 288 1,416 1,811 2,273 25,197
Foreign .............................. 261 1,356 870 1,337
------- ------- ------- ------- -------
Total loan charge-offs ............. 10,477 18,545 23,514 47,770 48,079
------- ------- ------- ------- -------
Recoveries:
Commercial and financial ............. 1,818 1,178 1,414 1,494 256
Real estate construction ............. 90 73 259 4
Real estate mortgage ................. 125 206 488 52
Consumer ............................. 415 561 927 681 2,785
Foreign .............................. 328 187 268 444 43
------- ------- ------- ------- -------
Total recoveries ................... 2,776 2,205 3,356 2,671 3,088
------- ------- ------- ------- -------
Net loan charge-offs ............... 7,701 16,340 20,158 45,099 44,991
------- ------- ------- ------- -------
Allowance of foreign subsidiary purchased 1,405
Balance at end of year:
Domestic ............................. 52,424 50,968 56,987 64,323 49,007
Foreign .............................. 5,760 3,348 944 1,565 1,968
------- ------- ------- ------- -------
Total allowance for loan losses .... $58,184 $54,316 $57,931 $65,888 $50,975
======= ======= ======= ======= =======
Ratio of net charge-offs to average
loans outstanding ...................... .23% .63% .97% 2.14% 1.72%
======= ======= ======= ======= =======
ALLOWANCE FOR LOAN LOSSES (CONTINUED)
State Street establishes an allowance for loan losses to absorb probable
credit losses. Management's review of the adequacy of the allowance for loan
losses is ongoing throughout the year and is based, among other factors, on the
evaluation of the level of risk in the portfolio, the volume of adversely
classified loans, previous loss experience, current trends, and expected
economic conditions and its effect on borrowers.
While the allowance is established to absorb probable losses inherent in
the total loan portfolio, management allocates the allowance for loan losses to
specific loans, selected portfolio segments and certain off-balance sheet
exposures and commitments. Adversely classified loans in excess of $1 million
are individually reviewed to evaluate risk of loss and assigned a specific
allocation of the allowance. The allocations are based on an assessment of
potential risk of loss and include evaluations of the borrowers' financial
strength, cash flows, collateral, appraisals and guarantees. The allocations to
portfolio segments and off-balance sheet exposures are based on management's
evaluation of relevant factors, including the current level of problem loans and
current economic trends. These allocations are also based on subjective
estimates and management judgment, and are subject to change from
quarter-to-quarter. In addition, a portion of the allowance remains unallocated
as a general reserve for the entire loan portfolio.
The provision for loan losses is a charge to earnings for the current
period which is required to maintain the total allowance at a level considered
adequate in relation to the level of risk in the loan portfolio. The provision
for loan losses was $11.6 million for 1994, which compares to $11.3 million in
1993.
At December 31, 1994, the allowance for loan losses was $58.2 million, or
1.80% of loans. This compares to an allowance of $54.3 million or 2.03% of loans
a year ago. This decline reflects improvement in measures of credit quality and
improvement in the outlook for general economic conditions and its effect on
borrowers. The decline in the allowance for loan losses as a percentage of loan
volume is also attributable to the growth in loan exposures to financial asset
services customers and securities brokers in conjunction with their trading and
settlement activity. These loan exposures are generally short-term, usually
overnight, and are structured to have relatively low credit exposure.
CREDIT QUALITY
At December 31, 1994, loans comprised 15% of State Street's assets,
compared to over 55% for other banking companies of comparable size. State
Street's loan policies limit the size of individual loan exposures to reduce
risk through diversification.
In 1994, net charge-offs declined from $16.3 million to $7.7 million. Net
charge-offs as a percentage of average loans were .23% compared to .63% for
1993.
At December 31, 1994, total non-performing assets were $27.4 million, a
$10.5 million decrease from year-end 1993. For 1994 and 1993, respectively,
non-performing assets include $23.0 million and $26.8 million of non-accrual
loans and $4.4 million and $11.1 million of other real estate owned. In 1994,
loans placed on non-accrual status were more than offset by charge-offs,
payments, and the return to accrual status of several loans. The decline in
other real estate owned resulted from property sales.
In 1994, measures of credit quality improved, as discussed above, as did
the general economic outlook. The economy in the Northeast began to expand
modestly after several years of decline. We expect these levels of credit
quality to continue in in 1995. It is anticipated that charge-off's in 1995 will
approximate the 1994 level and will be primarily in the commercial and financial
category.
CROSS-BORDER OUTSTANDINGS
Countries with which State Street has cross-border outstandings (primarily
deposits and letters of credit to banks and other financial institutions) of at
least 1% of its total assets at December 31, 1994, 1993 and 1992, were as
follows:
1994 1993 1992
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Japan ................................. $1,708,021 $1,688,130 $1,630,148
United Kingdom ........................ 543,055 613,515 524,352
France ................................ 461,919 519,565 444,637
Australia ............................. 648,697 498,671 174,652
Italy ................................. 527,682 367,931 420,535
Germany ............................... 438,624 339,477 371,657
Canada ................................ 265,322 289,152 220,217
Netherlands ........................... 101,797 224,622
Hong Kong ............................. 206,443
Switzerland ........................... 175,052
----------- ----------- -----------
Total outstandings ................ $4,695,117 $4,747,506 $3,961,250
=========== =========== ===========
Aggregate of cross-border outstandings in countries having between .75% and
1% of total assets at December 31, 1994 was $176,988,000 (Switzerland); December
31, 1993 was $171,688,000 (Belgium); and at December 31, 1992 was $139,333,000
(Austria). At December 31, 1994 there was $2,308,000 of cross-border risk with
Mexico.
DEPOSITS
The average balance and rates paid on interest-bearing deposits for the
years ended December 31, were as follows:
1994 1993 1992
---------------------- --------------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
------------ -------- ----------- -------- ----------- --------
(DOLLARS IN THOUSANDS)
Domestic:
Noninterest-bearing
deposits........... $4,092,884 $3,589,812 $2,920,939
Savings deposits.... 1,873,656 2.93% 2,166,996 2.41% 2,153,699 3.16%
Time deposits....... 118,855 3.52 157,481 2.88 162,464 3.86
---------- ---------- ----------
Total domestic.... $6,085,395 $5,914,289 $5,237,102
========== ========== ==========
Foreign:
Noninterest-bearing
deposits.......... $ 61,552 $ 33,037 $ 31,424
Interest-bearing... 7,391,751 2.92% 4,953,696 2.95% 3,954,528 4.42%
---------- ---------- ----------
Total foreign.... $7,453,303 $4,986,733 $3,985,952
========== ========== ==========
Maturities of domestic certificates of deposit of $100,000 or more at
December 31, 1994, were as follows:
(DOLLARS IN THOUSANDS)
3 months or less ..................................... $79,992
3 to 6 months ........................................ 4,651
6 to 12 months ....................................... 3,452
Over 12 months ....................................... 2,416
------
Total ............................................ $90,511
=======
At December 31, 1994, substantially all foreign time deposit liabilities
were in amounts of $100,000 or more. Included in noninterest-bearing deposits
were foreign deposits of $44,816,000, $28,519,000 and $41,492,000 at December
31, 1994, 1993 and 1992.
SHORT-TERM BORROWINGS
The following table reflects the amounts outstanding and weighted average
interest rates of the primary components of short-term borrowings as of and for
the years ended:
FEDERAL SECURITIES SOLD
FUNDS UNDER REPURCHASE
PURCHASED AGREEMENTS
--------- ----------------
(DOLLARS IN THOUSANDS)
Balance as of December 31:
1994 ......................................................... $ 113,143 $4,798,261
1993 ......................................................... 269,083 2,972,928
1992 ......................................................... 623,670 2,751,416
Maximum outstanding at any month end:
1994 ......................................................... $ 745,443 $6,684,105
1993 ......................................................... 1,081,811 5,297,210
1992 ......................................................... 1,522,522 4,313,852
Average outstanding during the year:
1994 ......................................................... $ 410,784 $4,927,445
1993 ......................................................... 741,082 4,133,726
1992 ......................................................... 919,109 3,290,196
Weighted average interest rate at year end:
1994 ......................................................... 5.3% 4.9%
1993 ......................................................... 2.7 2.7
1992 ......................................................... 2.3 2.8
Weighted average interest rate during the year:
1994 ......................................................... 3.9% 4.1%
1993 ......................................................... 2.8 2.9
1992 ......................................................... 3.4 3.4
COMPETITION
State Street operates in a highly competitive environment in all areas of
its business on a world wide basis, including servicing financial assets,
investment management and commercial lending. In addition to facing strong
competition from other deposit taking institutions, State Street faces strong
competition from investment management firms, private trustees, insurance
companies, mutual funds, broker/dealers, investment banking firms, law firms,
benefit consultants, and business service companies. As State Street expands
globally, additional sources of competition are encountered.
EMPLOYEES
At December 31, 1994, State Street had 11,127 employees, of whom 10,766
were full-time.
REGULATION AND SUPERVISION
State Street is registered with the Board of Governors of the Federal
Reserve System (the "Board") as a bank holding company pursuant to the Bank
Holding Company Act of 1956, as amended (the "Act"). The Act, with certain
exceptions, limits the activities that may be engaged in by State Street and its
non-bank subsidiaries to those which are deemed by the Board to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. In making such determination, the Board must consider whether the
performance of any such activity by a subsidiary of State Street can reasonably
be expected to produce benefits to the public, such as greater convenience,
increased competition or gains in efficiency, that outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices. The Board is
authorized to differentiate between activities commenced de novo and those
commenced by the acquisition in whole or in part of a going concern. The Board
may order a bank holding company to terminate any activity or its ownership or
control of a nonbank subsidiary if the Board finds that such activity or
ownership or control constitutes a serious risk to the financial safety,
soundness or stability of a subsidiary bank and is inconsistent with sound
banking principles or statutory purposes. In the opinion of management, all of
State Street's present subsidiaries are within the statutory standard or are
otherwise permissible.
The Act also requires a bank holding company to obtain prior approval of
the Board before it may acquire substantially all the assets of any bank or
ownership or control of more than 5% of the voting shares of any bank. Until
September 29, 1995, the Act prohibits a bank holding company from acquiring
shares of a bank located outside the state in which the operations of the
holding company's banking subsidiaries are principally conducted unless such an
acquisition is specifically authorized by statute of the other state. On
September 29, 1994, President Clinton signed into law the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "Interstate Act"). The
Interstate Act generally authorizes bank holding companies to acquire banks
located in any state commencing on September 29, 1995. In addition, it generally
authorizes national and state chartered banks to merge across state lines (and
thereby create interstate branches) commencing June 1, 1997. Under the
provisions of the Interstate Act, states are permitted to "opt out" of this
latter interstate branching authority by taking action prior to the commencement
date. States may also "opt in" early (i.e., prior to June 1, 1997) to the
interstate merger provisions. Further, the Interstate Act provides that states
may act affirmatively to permit de novo branching by banking institutions across
state lines.
The Board has established risk-based capital guidelines that require
minimum ratios of capital to risk-weighted assets and certain off-balance sheet
credit exposure. The Board also maintains a leverage ratio guideline that is a
measure of capital to total average balance sheet assets. Information on State
Street's capital appears in State Street's 1994 Annual Report to Stockholders on
page 34 and is incorporated by reference.
State Street and its non-bank subsidiaries are affiliates of State Street
Bank under the federal banking laws, which impose certain restrictions on
transfers of funds in the form of loans, extensions of credit, investments or
asset purchases by State Street Bank to State Street and its non-bank
subsidiaries. Transfers of this kind to State Street and its non-bank
subsidiaries by State Street Bank are limited to 10% of State Street Bank's
capital and surplus with respect to each affiliate and to 20% in the aggregate,
and are also subject to certain collateral requirements. A bank holding company
and its subsidiaries are prohibited from engaging in certain tie-in arrangements
in connection with any extension of credit or lease or sale of property or
furnishing of services. Federal law also provides that certain transactions with
affiliates must be on terms and under circumstances, including credit standards
that are substantially the same, or at least as favorable to the institution as
those prevailing at the time for comparable transactions involving other
non-qualified companies or, in the absence of comparable transactions, on terms
and under circumstances, including credit standards, that in good faith would be
offered to, or would apply to, nonaffiliated companies. The Board has
jurisdiction to regulate the terms of certain debt issues of bank holding
companies.
State Street, State Street Bank and their affiliates are also subject to
restrictions with respect to issuing, floating and underwriting, or publicly
selling or distributing, securities in the United States. State Street and its
affiliates are able to underwrite and deal in specific categories of securities,
including U.S. government and certain agency, state, and municipal securities.
Board policy requires a bank holding company to act as a source of
financial strength for its subsidiary banks and to commit resources to support
such banks. Under this policy, State Street may be required to commit resources
to its subsidiary banks in circumstances where it might not do so absent such
policy. In the event of a bank holding company's bankruptcy, any commitment by
the bank holding company to a federal bank regulatory agency to maintain the
capital of a subsidiary bank will be assumed by the bankruptcy trustee and
entitled to a priority payment.
The primary banking agency responsible for regulating State Street and its
subsidiaries, including State Street Bank, for both domestic and international
operations is the Federal Reserve Bank of Boston. State Street is also subject
to the Massachusetts bank holding company statute. The Massachusetts statute
requires prior approval by the Massachusetts Board of Bank Incorporation for the
acquisition by State Street of more than 5% of the voting shares of any
additional bank and for other forms of bank acquisitions.
State Street's banking subsidiaries are subject to supervision and
examination by various regulatory authorities. State Street Bank is a member of
the Federal Reserve System and the Federal Deposit Insurance Corporation (the
"FDIC") and is subject to applicable federal and state banking laws and to
supervision and examination by the Federal Reserve Bank of Boston, as well as by
the Massachusetts Commissioner of Banks,the FDIC, and the regulatory authorities
of those countries in which a branch of State Street Bank is located. Other
subsidiary banks are subject to supervision and examination by the Office of the
Comptroller of the Currency or by the appropriate state banking regulatory
authorities of the states in which they are located. State Street's foreign
banking subsidiaries are also subject to regulation by the regulatory
authorities of the countries in which they are located. The capital of each of
these banking subsidiaries is in excess of the minimum legal capital
requirements as set by those authorities.
RECENT STATUTORY DEVELOPMENTS
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") broadened the enforcement powers of the federal banking agencies,
including increased power to impose fines and penalties, over all financial
institutions, including bank holding companies and commercial banks. As a result
of FIRREA, State Street Bank and any or all of its subsidiaries can be held
liable for any loss incurred by, or reasonably expected to be incurred by, the
FDIC after August 9, 1989, in connection with (a) the default of State Street
Bank or any other subsidiary bank or (b) any assistance provided by the FDIC to
State Street Bank or any other subsidiary bank in danger of default.
In 1990, Massachusetts adopted a law which permits Massachusetts banking
institutions to acquire banking institutions located in other states based on
a reciprocal basis. The Crime Control Act of 1990 further broadened the
enforcement powers of the federal banking agencies in a significant number of
areas.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") has as its primary objectives to recapitalize the Bank Insurance Fund
and strengthen the regulation and supervision of financial institutions. During
1994, the federal banking agencies continued the process of promulgating
regulations to implement the statute.
The "Prompt Corrective Action" provisions of the FDICIA are for the stated
purpose: "to resolve the problems of insured depository institutions at the
least possible long-term loss to the deposit insurance fund." Each federal
banking agency has implemented prompt corrective action regulations for the
institutions that it regulates. The statute requires or permits the agencies to
take certain supervisory actions when an insured depository institution falls
within one of five specifically enumerated capital categories. It also restricts
or prohibits certain activities and requires the submission of a capital
restoration plan when an insured institution becomes undercapitalized. The
implementing regulations establish the numerical limits for the capital
categories and establish procedures for issuing and contesting prompt corrective
action directives. The five tiers of capital measurement range from "well
capitalized" to "critically undercapitalized". To be within the category "well
capitalized", an insured depository institution must have a total risk- based
capital ratio of 10.0 percent or greater, a Tier 1 risk-based capital ratio of
6.0 percent or greater, and a leverage ratio of 5.0 percent or greater, and the
institution must not be subject to an order, written agreement, capital
directive, or prompt corrective action directive to meet specific capital
requirements. An insured institution is "adequately capitalized" if it has a
total risk-based capital ratio of 8.0 percent or greater, a Tier 1 risk-based
capital ratio of 4.0 percent or greater, and a leverage ratio of 4.0 percent or
greater (or a leverage ratio of 3.0 percent or greater if the institution is
rated composite 1 under the regulatory rating system). The final three capital
categories are levels of undercapitalized, which trigger mandatory statutory
provisions. While other factors in addition to capital ratios determine an
institution's capital category, State Street Bank's capital ratios were within
the "well-capitalized" category at December 31, 1994.
The Federal Reserve Board adopted a final rule, as required by the FDICIA,
prescribing standards that will limit the risks posed by an insured depository
institution's exposure to any other depository institution. Banks are required
to develop written policies and procedures to monitor credit exposure to other
banks, and to limit to 50% and 25% of total capital exposure to
"undercapitalized" banks in 1995 and 1996, respectively.
As required by the FDICIA, the FDIC adopted a regulation that permits only
well capitalized banks, and adequately capitalized banks that have received
waivers from the FDIC, to accept, renew or rollover brokered deposits.
Regulations have also been adopted by the FDIC to limit the activities conducted
as a principal by, and the equity investments of, state-chartered banks to those
permitted for national banks. Banks may apply to the FDIC for approval to
continue to engage in excepted investments and activities.
Other FDICIA regulations adopted require independent audits, an independent
audit committee of the bank's board of directors, stricter truth- in-savings
provisions, and standards for real estate lending. The FDICIA amended deposit
insurance coverage and the FDIC has implemented a rule specifying the treatment
of accounts to be insured up to $100,000.
Under other provisions of FDICIA, the federal banking agencies have
proposed safety and soundness standards for banks in a number of areas
including: internal controls, internal audit systems, information systems,
credit underwriting, interest rate risk, executive compensation and minimum
earnings. The agencies have also proposed rules to revise risk-based capital
standards to take account of interest rate risk, as required by FDICIA.
FDICIA and related regulations may result in higher costs for the banking
industry in terms of costs of compliance and recordkeeping.
Legislation enacted as part of the Omnibus Budget Reconciliation Act of
1993 provides that deposits in U.S. offices and certain claims for
administrative expenses and employee compensation against a U.S. insured
depository institution which has failed will be afforded a priority over other
general unsecured claims, including deposits in non-U.S. offices and claims
under non-depository contracts in all offices, against such an institution in
the "liquidation of other resolution" of such and institution by any receiver.
Accordingly, such priority creditors (including FDIC, as the subrogee of insured
depositors) of State Street Bank will be entitled to priority over unsecured
creditors in the event of a "liquidation or other resolution" of such
institution.
DIVIDENDS
As a bank holding company, State Street is a legal entity separate and
distinct from State Street Bank and its other non-bank subsidiaries. State
Street's principal source of cash revenues is dividends from State Street Bank
and its other non-bank subsidiaries. The right of State Street to participate as
a stockholder in any distribution of assets of a subsidiary upon its liquidation
or reorganization or otherwise is subject to the prior claims by creditors of
the subsidiary, including obligations for federal funds purchased and securities
sold under repurchase agreements, as well as deposit liabilities. Payment of
dividends by State Street Bank is subject to provisions of the Massachusetts
banking law which provides that dividends may be paid out of net profits
provided (i) capital stock and surplus remain unimpaired, (ii) dividend and
retirement fund requirements of any preferred stock have been met, (iii) surplus
equals or exceeds capital stock, and (iv) there are deducted from net profits
any losses and bad debts, as defined, in excess of reserves specifically
established therefor. Under the Federal Reserve Act, the approval of the Board
of Governors of the Federal Reserve System would be required if dividends
declared by the Bank in any year would exceed the total of its net profits for
that year combined with retained net profits for the preceding two years, less
any required transfers to surplus. Under applicable federal and state law
restrictions, at December 31, 1994 State Street Bank could have declared and
paid dividends of $426,554,000 without regulatory approval. Future dividend
payments of the Bank and non-bank subsidiaries cannot be determined at this
time.
ECONOMIC CONDITIONS AND GOVERNMENT POLICIES
Economic policies of the government and its agencies influence the
operating environment of State Street. Monetary policy conducted by the Federal
Reserve Board directly affects the level of interest rates and overall credit
conditions of the economy. Policy instruments utilized by the Federal Reserve
Board include open market operations in U.S. Government securities, changes in
reserve requirements for depository institutions, and changes in the discount
rate and availability of borrowing from the Federal Reserve.
ITEM 2. PROPERTIES
State Street's headquarters are located in the State Street Bank Building,
a 34-story building at 225 Franklin Street, Boston, Massachusetts, which was
completed in 1965. State Street leases approximately 451,000 square feet (or
approximately 49% of the space in this building) for a 30-year initial term with
two successive extension options of 20 years each at rentals to be negotiated.
State Street exercised the first of the two (2) options which will be effective
on January 1, 1996 for a term of 20 years.
State Street owns five buildings located in Quincy, Massachusetts, a suburb
of Boston. Four of the buildings, containing a total of approximately 1,365,000
square feet, function as State Street Bank's operations facilities. State Street
Bank occupies approximately 1,320,000 square feet and subleases the remaining
space. The fifth building, with 186,000 square feet, is leased to Boston
Financial Data Services, Inc., a 50% owned affiliate. Additionally, State Street
owns a 98,000 square foot building in Westborough, Massachusetts for use as a
second data center.
The remaining offices and facilities of State Street and its subsidiaries
are leased. As of December 31, 1994, the aggregate mortgage and lease payments,
net of sublease revenue, payable within one year amounted to $29,066,000, plus
assessments for real estate tax, cleaning and operating escalations.
For additional information relating to premises, see Note E to the Notes to
Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
State Street is subject to pending and threatened legal actions that arise
in the normal course of business. In the opinion of management, after discussion
with counsel, these can be successfully defended or resolved without a material
adverse effect on State Street's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 4.A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with regard to each
executive officer of State Street. As used herein, the term "executive officer"
means an officer who performs policy-making functions for State Street.
NAME AGE POSITION
---- --- --------
Marshall N. Carter ....................................... 55 Chairman and Chief Executive Officer
David A. Spina ........................................... 52 Vice Chairman
George J. Fesus .......................................... 52 Executive Vice President, Chief Financial Officer and
Treasurer
A. Edward Allinson ....................................... 60 Executive Vice President
Dale L. Carleton ......................................... 50 Executive Vice President
Susan Comeau ............................................. 53 Executive Vice President
James J. Darr ............................................ 48 Executive Vice President
Howard H. Fairweather .................................... 56 Executive Vice President
Charles J. Kelly ......................................... 50 Executive Vice President
Ronald E. Logue .......................................... 49 Executive Vice President
Nicholas A. Lopardo ...................................... 48 Executive Vice President
Albert E. Petersen ....................................... 49 Executive Vice President
William M. Reghitto ...................................... 52 Executive Vice President
David J. Sexton .......................................... 55 Executive Vice President
Norton Q. Sloan .......................................... 58 Executive Vice President
All executive officers are elected by the Board of Directors. There are no
family relationships among any of the directors and executive officers of State
Street. With the exception of Messrs. Carter, Allinson, Logue and Petersen, all
of the executive officers have been officers of State Street for five years or
more. Mr. Carter became President of State Street in July, 1991, Chief Executive
Officer in January, 1992 and Chairman in January, 1993. Prior to joining State
Street, he was with Chase Manhattan Bank for 15 years, including the last three
as head of global securities services. Mr. Allinson became an officer of State
Street in March, 1990. Prior to joining State Street, he was President of
Mitchell Hutchins Asset Management, a subsidiary of PaineWebber Incorporated,
responsible for six financial service subsidiaries. Mr. Petersen became an
officer of State Street in August, 1991. Prior to joining State Street, he was
an Executive Vice President at First Empire State Corporation, a bank holding
company, responsible for operations and systems. Mr. Logue became an officer of
State Street in 1991. Prior to joining State Street, he was Executive Vice
President at Bank of New England Corporation where he was head of processing
services. Mr. Sloan retired effective December 31, 1994 and Mr. Fesus resigned
effective February 16, 1995, at which time Mr. Spina became Chief Financial
Officer and Treasurer.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information concerning the market prices of and dividends on State Street's
common stock during the past two years appears on page 35 of State Street's 1994
Annual Report to Stockholders and is incorporated by reference. There were 6,028
stockholders of record at December 31, 1994. During 1994, State Street's common
stock was traded on the NASDAQ National Market System, ticker symbol: STBK. In
February 1995, State Street's common stock was listed for trading on the New
York Stock Exchange, ticker symbol: STT.
ITEM 6. SELECTED FINANCIAL DATA
The information is set forth on page 21 of State Street's 1994 Annual
Report to Stockholders and is incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The information required by this item appears in State Street's 1994 Annual
Report to Stockholders on pages 3 and 4 and pages 22 through 37 and is
incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL FINANCIAL DATA
The Consolidated Financial Statements, Report of Independent Auditors and
Supplemental Financial Data appearing on pages 38 through 59 of State Street's
1994 Annual Report to Stockholders and are incorporated by reference.
ITEM 9. CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning State Street's directors appears on pages 1 through
6 of State Street's Proxy Statement for the 1995 Annual Meeting of Stockholders
under the caption "Election of Directors" which Statement is to be filed with
the Securities and Exchange Commission. Such information is incorporated by
reference.
Information concerning State Street's executive officers appears under the
caption "Executive Officers of the Registrant" in Item 4.A. of this Report.
Information concerning compliance with Section 16(a) of the Securities
Exchange Act appears on page 8 of State Street's Proxy Statement for the 1995
Annual Meeting of Stockholders under the caption "Compliance with Section 16 (a)
of the Securities Exchange Act." Such information is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning compensation of the executives of State Street
appears on pages 9 through 16 in State Street's Proxy Statement for the 1995
Annual Meeting of Stockholders under the caption "Executive Compensation". Such
information is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management appears on pages 7 and 8 in State Street's Proxy Statement for the
1995 Annual Meeting of Stockholders under the caption "Beneficial Ownership of
Shares". Such information is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
appears on page 8 in State Street's Proxy Statement for the 1995 Annual Meeting
of Stockholders under the caption "Certain Transactions". Such information is
incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements -- The following consolidated financial
statements of State Street included in its Annual Report to
Stockholders for the year ended December 31, 1994, are incorporated
by reference in Item 8 hereof:
Consolidated Statement of Income--Years ended December 31, 1994,
1993 and 1992
Consolidated Statement of Condition--December 31, 1994 and 1993
Consolidated Statement of Cash Flows--Years ended December 31, 1994,
1993 and 1992
Consolidated Statement of Changes in Stockholders' Equity--Years
ended December 31, 1994, 1993 and 1992
Notes to Financial Statements
Report of Independent Auditors
(2) Financial Statement Schedules--Schedules to the consolidated
financial statements required by Article 9 of Regulation S-X are not
required under the related instructions, are inapplicable, or the
information is contained herein and therefore have been omitted.
(3) Exhibits
A list of the exhibits filed or incorporated by reference appears
following page 17 of this Report, which information is incorporated
by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, on March 16, 1995, thereunto duly authorized.
STATE STREET BOSTON CORPORATION
REX S. SCHUETTE
By --------------------------------
REX S. SCHUETTE
Senior Vice President and
Comptroller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 16, 1995, by the following persons on
behalf of the registrant and in the capacities indicated.
OFFICERS:
MARSHALL N. CARTER DAVID A. SPINA
----------------------------------------------------- -------------------------------------------------
MARSHALL N. CARTER, Chairman and Chief Executive DAVID A. SPINA, Vice Chairman, Treasurer and
Officer Chief Financial Officer
REX S. SCHUETTE
-------------------------------------------------
REX S. SCHUETTE, Senior Vice President and
Comptroller
DIRECTORS:
TENLEY E. ALBRIGHT JOSEPH A. BAUTE
----------------------------------------------------- -------------------------------------------------
TENLEY E. ALBRIGHT JOSEPH A. BAUTE
JAMES I. CASH
----------------------------------------------------- -------------------------------------------------
I. MACALLISTER BOOTH JAMES I. CASH
TRUMAN S. CASNER NADER F. DAREHSHORI
----------------------------------------------------- -------------------------------------------------
TRUMAN S. CASNER NADER F. DAREHSHORI
LOIS D. JULIBER CHARLES F. KAYE
----------------------------------------------------- -------------------------------------------------
LOIS D. JULIBER CHARLES F. KAYE
CHARLES R. LAMANTIA JOHN M. KUCHARSKI
----------------------------------------------------- -------------------------------------------------
CHARLES R. LAMANTIA JOHN M. KUCHARSKI
DENNIS J. PICARD DAVID B. PERINI
----------------------------------------------------- -------------------------------------------------
DENNIS J. PICARD DAVID B. PERINI
BERNARD W. REZNICEK ALFRED POE
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BERNARD W. REZNICEK ALFRED POE
ROBERT E. WEISSMAN
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ROBERT E. WEISSMAN
EXHIBIT INDEX
EXHIBIT 2. PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION
OR SUCCESSION
2.1 Acquisition agreement dated September 27, 1994 among Registrant,
Kemper Financial Services, Inc. and DST Systems, Inc. pertaining to
the acquisition of IFTC Holdings, Inc. (filed with the Securities and
Exchange Commission as Exhibit 2 to Registrant's Quarterly Report on
Form 10Q for the quarter ended September 30, 1994 and incorporated by
reference).
EXHIBIT 3. ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Restated Articles of Organization as amended (filed with the
Securities and Exchange Commission as Exhibit 3.1 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1988 and
incorporated by reference)
3.2 By-laws as amended (filed with the Securities and Exchange Commission
as Exhibit 3.2 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992 and incorporated by reference)
3.3 Certificate of Designation, Preferences and Rights (filed with the
Securities and Exchange Commission as Exhibit 3.1 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992 and
incorporated by reference)
EXHIBIT 4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
4.1 The description of the Company's Common Stock included in the
Company's effective registration statement report on Form 10, as
filed with the Securities and Exchange Commission on September 3,
1970 and amended on May 12, 1971 and incorporated by reference.
4.2 Rights Agreement dated as of September 15, 1988 between State Street
Boston Corporation and The First National Bank of Boston, Rights
Agent (filed with the Securities and Exchange Commission as Exhibit 4
to Registrant's Current Report on Form 8-K dated September 30, 1988
and incorporated by reference)
4.3 Amendment to Rights Agreement dated as of September 20, 1990 between
State Street Boston Corporation and The First National Bank of
Boston, Rights Agent (filed with the Securities and Exchange
Commission as Exhibit 4 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1990 and incorporated by
reference)
4.4 Indenture dated as of May 1, 1983 between State Street Boston
Corporation and Morgan Guaranty Trust Company of New York, Trustee,
relating to the Company's 7 3/4% Convertible Subordinated Debentures
due 2008 (filed with the Securities and Exchange Commission as
Exhibit 4 to the Registrant's Registration Statement on Form S-3
filed on April 22, 1983, Commission File No. 2-83251 and incorporated
by reference)
4.5 Indenture dated as of August 2, 1994 between State Street Boston
Corporation and The First National Bank of Boston, as trustee (filed
with the Securities and Exchange Commission as Exhibit 4 to the
Registrant's Current Report on Form 8-K dated October 8, 1994 and
incorporated by reference)
EXHIBIT 10. MATERIAL CONTRACTS
Executive Compensation Plans and Agreements:
10.1 State Street Boston Corporation Long-Term Common Stock Incentive
Program, as amended (filed with the Securities and Exchange
Commission as Exhibit 10.1 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1981 and incorporated by reference)
10.2 State Street Boston Corporation 1981 Stock Option and Performance
Share Plan, as amended (filed with the Securities and Exchange
Commission as Exhibit 10.2 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1981 and incorporated by reference)
10.3 State Street Boston Corporation 1984 Stock Option Plan (filed with
the Securities and Exchange Commission as Exhibit 4(a) to
Registrant's Registration Statement on Form S-8 (File No. 2-93157)
and incorporated by reference)
10.4 State Street Boston Corporation 1985 Stock Option and Performance
Share Plan (filed with the Securities and Exchange Commission as
Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1985 and incorporated by reference)
10.5 Revised Forms of Termination Agreement with Executive Officers (filed
with the Securities and Exchange Commission as Exhibit 10.1 to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1989 and incorporated by reference)
10.6 State Street Boston Corporation 1989 Stock Option Plan (filed with
the Securities and Exchange Commission as Exhibit 10.1 to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1989 and incorporated by reference)
10.7 State Street Boston Corporation 1990 Stock Option and Performance
Share Plan (filed with the Securities and Exchange Commission as
Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990 and incorporated by reference)
10.8 State Street Boston Corporation Supplemental Executive Retirement
Plan, together with individual benefit agreements (filed with the
Securities and Exchange Commission as Exhibit 10.1 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992 and
incorporated by reference)
10.9 Individual Pension Agreement with Marshall N. Carter (filed with the
Securities and Exchange Commission as Exhibit 10.1 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992 and
incorporated by reference)
10.10 Individual Pension Agreement with A. Edward Allinson (filed with the
Securities and Exchange Commission as Exhibit 10.1 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992 and
incorporated by reference)
10.11 Supplemental Retirement Agreement with Norton Q. Sloan (filed with
the Securities and Exchange Commission as Exhibit 10.11 to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1993 and incorporated by reference)
10.12 Individual Pension Agreement with Albert E. Petersen (filed with the
Securities and Exchange Commission as Exhibit 10.11 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993 and
incorporated by reference)
10.13 Termination Benefits Arrangement with Marshall N. Carter (filed with
the Securities and Exchange Commission as Exhibit 10.11 to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1993 and incorporated by reference)
10.14 State Street Global Advisors Incentive Plan for 1993 (filed with the
Securities and Exchange Commission as Exhibit 10.11 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993 and
incorporated by reference)
10.15 State Street Global Advisors Incentive Plan for 1994 (filed with the
Securities and Exchange Commission as Exhibit 10.11 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993 and
incorporated by reference)
10.16 Senior Executives Annual Incentive Plan (filed with the Securities
and Exchange Commission as Exhibit 10.11 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993 and
incorporated by reference)
10.17 1994 Stock Option and Performance Unit Plan (filed with the
Securities and Exchange Commission as Exhibit 10.11 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993 and
incorporated by reference)
10.18 Compensation agreement with J.R. Towers dated September 30, 1994
(filed with the Securities and Exchange Commission as Exhibit 10 to
Registrant's Annual Report on Form 10-Q for the year ended September
30, 1994 and incorporated by reference)
10.19 1995 Annual Incentive Plan for Senior Executive Officers
10.20 State Street Global Advisors Incentive Plan for 1995
10.21 Supplemental Defined Benefit Pension Plan for Senior Executive
Officers
10.22 Nonemployee Director Retirement Plan
EXHIBIT 11. STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
11.1 State Street Boston Corporation Computation of Earnings Per Share
EXHIBIT 12. STATEMENT RE COMPUTATION OF RATIOS
12.1 Statement of ratio of earnings to fixed charges.
EXHIBIT 13. PORTIONS OF ANNUAL REPORT TO STOCKHOLDERS
13.1 Five Year Selected Financial Data.
13.2 Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Three Years Ended December 31, 1994
(not covered by the Report of Independent Public Accountants).
13.3 Letter to Stockholders.
13.4 State Street Boston Corporation Consolidated Financial Statements and
Schedules.
EXHIBIT 21. SUBSIDIARIES
21.1 Subsidiaries of State Street Boston Corporation
EXHIBIT 23. CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of Independent Auditors