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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
(TITLE OF CLASS) (NAME OF EXCHANGE ON WHICH REGISTERED)
---------------- --------------------------------------
COMMON STOCK, $1 PAR VALUE BOSTON STOCK EXCHANGE NEW YORK STOCK
EXCHANGE AND PACIFIC STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
----------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [X]
THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S COMMON STOCK HELD BY NON-
AFFILIATES (PERSONS OTHER THAN DIRECTORS AND EXECUTIVE OFFICERS) OF THE
REGISTRANT ON FEBRUARY 28, 1997 WAS $6,398,714,000.
THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING ON
FEBRUARY 28, 1997 WAS 80,515,785.
PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED INTO THE PARTS OF THIS
REPORT ON FORM 10-K INDICATED BELOW:
(1) THE ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31,
1996 AND
(2) THE REGISTRANT'S DEFINITIVE PROXY STATEMENT DATED MARCH 11, 1997
(PART III)
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
State Street Boston Corporation ("State Street," "the Corporation"), is a
bank holding company organized under the laws of the Commonwealth of
Massachusetts and is a leading provider of services to institutional investors
worldwide.
State Street was organized in 1970 and conducts its business principally
through its subsidiary, State Street Bank and Trust Company ("State Street
Bank," "the 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 a market leader in the businesses on which it focuses, with
$2.9 trillion of assets under custody, $322 billion of bonds under trusteeship,
and $292 billion of assets under management at year-end 1996. Customers include
collective investment fund companies, corporations, public pension funds, unions
and non-profit organizations in and outside of the United States. For
information as to non-U.S. activities, refer to Note T to the Notes to Financial
Statements which appear in State Street's 1996 Annual Report to Stockholders.
Such information is incorporated by reference.
State Street's total assets were $31.5 billion at December 31, 1996, of
which $23.0 billion, or 73%, were investment securities and money market assets
and $4.6 billion, or 15%, were loans.
Services are provided from 23 offices in the United States, as well as from
offices in Australia, Belgium, Canada, Denmark, France, Germany, Grand Cayman,
Hong Kong, Japan, Luxembourg, Netherlands Antilles, New Zealand, Taiwan, United
Arab Emirates and United Kingdom. State Street's executive offices are located
at 225 Franklin Street, Boston, Massachusetts.
LINES OF BUSINESS
State Street reports three lines of business: Financial Asset Services,
Investment Management and Commercial Lending. In 1996, 64% of operating profit
came from the broad and growing array of financial asset services, 21% came from
commercial lending and 15% from investment management.
FINANCIAL ASSET SERVICES
Financial Asset Services provides accounting, custody, daily pricing and
other services for large pools of investment assets worldwide such as mutual
funds and other collective investment funds, public and corporate pension plans,
non-profit portfolios; and corporate trusteeship. Customers use a broad array of
other services as well, including fund administration, information services,
recordkeeping, foreign exchange services, global cash management, credit
services, securities lending and deposit and short-term investment facilities.
With $1.3 trillion of mutual fund assets under custody, State Street is the
leading mutual fund custodian in the United States, servicing 39% of registered
funds. State Street began providing mutual fund services in 1924. Customers who
sponsor the 2,729 U.S. mutual funds that State Street services include
investment companies, broker/dealers, insurance companies and others. In
addition, State Street services 245 offshore mutual funds and collective
investment funds in other countries.
State Street is distinct from other mutual fund service providers in the
extent to which it provides related services in addition to custody, including
accounting and daily pricing, fund administration, accounting for multiple
classes of shares, master/feeder accounting, and services for offshore funds and
in-country funds from locations outside the United States. Shareholder
accounting is provided through a 50%-owned affiliate.
State Street began servicing pension assets in 1974, and now has $1.4
trillion of pension and other assets under custody for U.S. customers. State
Street is ranked as the largest servicer of tax-exempt assets for both
corporations and public funds in the United States and the largest global
custodian for U.S. pension assets. Services include portfolio accounting,
securities custody and other related services for retirement plans and other
financial assets of corporations, public funds, endowments and foundations for
both U.S. and non-U.S. customers. State Street provides global and domestic
custody and custody-related services for $202 billion in assets for customers
outside the United States.
State Street provides foreign exchange trading, global cash management and
securities lending services to institutional investors worldwide. In serving
these customers, State Street also provides repurchase agreements and deposit
services for the short-term cash associated with customers' investment
activities. 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, Hong Kong, London,
Luxembourg, Munich, Sydney and Tokyo. 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 four offices in the United States. 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. The Bank's investment management arm, State Street Global Advisors
("SSgA"), now offers enhanced index and fully-active equity strategies,
short-term investment funds, and fixed income products. SSgA has 14 offices in
nine countries, including investment centers in Boston, Hong Kong, London,
Montreal, Paris, Sydney and Tokyo. State Street is ranked as the third-largest
money manager in the United States, and as the largest manager of both
tax-exempt assets and internationally-indexed assets, and the third-largest
manager of U.S. defined contribution plan assets. 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 1996, institutional and personal trust assets under management
totaled $292 billion. Additionally, State Street provides recordkeeping and
other services attendant to its investment management activities, including
services for two million defined contribution plan participants as of year-end
1996.
COMMERCIAL LENDING
State Street provides corporate banking, specialized lending and
international banking to business and financial institutions. Corporate banking
services are offered to regional middle market companies, for companies in
selected industries nationwide and broker/dealers. Other credit services include
asset-based finance, leasing, real estate, and international 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, selected financial data and management's
discussion and analysis of financial condition and results of operation, all of
which appear in State Street's 1996 Annual Report to Stockholders and is
incorporated by reference herein. Information reported in State Street's 1994
Form 10-K was restated for the acquisition of Investors Fiduciary Trust Company
which was accounted for as a pooling of interests. This restated information was
filed with the SEC on Form 8-K, dated May 19, 1995.
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.
1996 1995 1994
--------------------------------- --------------------------------- ---------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ---- ------- -------- ---- ------- -------- ----
(DOLLARS IN MILLIONS)
ASSETS
Interest-bearing deposits
with banks(1) .......... $ 7,041 $ 336 4.78% $ 5,466 $ 287 5.25% $ 5,183 $209 4.04%
Securities purchased under
resale agreements and
securities borrowed .... 6,010 326 5.43 5,569 329 5.91 3,102 132 4.26
Federal funds sold ....... 561 30 5.35 475 28 5.97 537 24 4.45
Trading account assets ... 326 18 5.41 412 21 5.13 532 26 4.90
Investment securities:
U.S. Treasury and
Federal agencies ..... 4,319 261 6.03 4,139 243 5.89 3,455 184 5.33
State and political
subdivisions ......... 1,478 92 6.25 1,183 71 5.96 1,120 57 5.09
Other investments ...... 2,111 127 6.01 2,212 134 6.05 2,597 139 5.35
Loans(2):
Domestic ............... 3,353 212 6.32 2,926 201 6.88 2,729 146 5.34
Non-U.S. ............... 1,160 78 6.71 738 57 7.69 672 44 6.56
------- ------ ------- ------ ------- ----
Total interest-earning
assets ............... 26,359 1,480 5.61 23,120 1,371 5.93 19,927 961 4.82
Cash and due from banks .. 1,164 1,026 1,286
Allowance for loan losses (70) (62) (58)
Premises and equipment ... 458 481 462
Customers' acceptance
liability(3) ........... 42 63 30
Other assets ............. 1,530 1,554 1,148
------- ------- -------
Total Assets ........... $29,483 $26,182 $22,795
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
Savings ................ $ 2,097 86 4.10 $ 1,913 85 4.45 $ 1,992 57 2.85
Time ................... 150 8 5.26 131 7 5.47 172 8 4.52
Non-U.S. ............... 10,372 331 3.19 8,470 324 3.82 7,392 216 2.93
Securities sold under
repurchase agreements .. 7,819 394 5.05 7,080 399 5.65 4,958 201 4.07
Federal funds purchased .. 357 19 5.18 504 30 5.89 411 16 3.90
Other short-term
borrowings ............. 707 36 5.04 761 41 5.32 563 25 4.40
Notes payable ............ 124 3 2.47 214 12 5.73 258 12 4.64
Long-term debt ........... 213 15 6.95 127 9 6.71 128 9 6.73
------- ------ ------- ------ ------- ----
Total interest-bearing
liabilities ........ 21,839 892 4.08 19,200 907 4.72 15,874 544 3.43
------ ---- ------ ---- ---- ----
Noninterest-bearing
deposits ............... 4,638 4,113 4,701
Acceptances outstanding(3) 42 64 30
Other liabilities ........ 1,346 1,322 906
Stockholders' equity ..... 1,618 1,483 1,284
------- ------- -------
Total Liabilities and
Stockholders' Equity . $29,483 $26,182 $22,795
======= ======= =======
Net interest revenue ... $ 588 $ 464 $417
====== ====== ====
Excess of rate earned
over rate paid ....... 1.53% 1.21% 1.39%
==== ==== ====
Net Interest Margin(4) ... 2.23% 2.01% 2.09%
==== ==== ====
- ----------
(1) Amounts reported were with non-U.S. domiciled offices of other banks.
(2) Non-accrual loans are included in the average loan amounts outstanding.
(3) In 1996, 1995 and 1994, 40%, 22% and 43% of acceptances were Non-U.S.
(4) 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%, 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.
1996 COMPARED TO 1995 1995 COMPARED TO 1994
----------------------------------------- ----------------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO NET DUE TO NET
--------------------------- INCREASE -------------------------- INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
------ ---- ---------- ------ ---- ----------
(DOLLARS IN MILLIONS)
Interest revenue related to:
Interest-bearing deposits
with banks ............... $ 71 $ (22) $ 49 $ 12 $ 66 $ 78
Securities purchased under
resale agreements
and securities borrowed .. 95 (98) (3) 132 65 197
Federal funds sold ......... 4 (2) 2 (2) 6 4
Trading account assets ..... (4) 1 (3) (6) 1 (5)
Investment securities:
U.S. Treasury and Federal
agencies ............... 12 6 18 39 20 59
State and political
subdivisions ........... 18 3 21 3 11 14
Other investments ........ (6) (1) (7) (42) 37 (5)
Loans:
Domestic ................. 24 (13) 11 11 44 55
Non-U.S. ................. 27 (6) 21 5 8 13
---- ----- ---- ---- ---- ----
Total interest-earning
assets ................. 241 (132) 109 152 258 410
---- ----- ---- ---- ---- ----
Interest expense related to:
Deposits:
Savings ................ 5 (4) 1 (2) 30 28
Time ................... 1 1 (5) 4 (1)
Non-U.S. ............... 27 (20) 7 35 73 108
Securities sold under
repurchase agreements .... 269 (274) (5) 104 94 198
Federal funds purchased .... (8) (3) (11) 4 10 14
Other short-term borrowings (3) (2) (5) 10 6 16
Notes payable .............. (4) (5) (9) (1) 1
Long-term debt ............. 6 6
---- ----- ---- ---- ---- ----
Total interest-bearing
liabilities ............ 293 (308) (15) 145 218 363
---- ----- ---- ---- ---- ----
Net Interest Revenue ..... $(52) $ 176 $124 $ 7 $ 40 $ 47
==== ===== ==== ==== ==== ====
INVESTMENT PORTFOLIO
Investment securities consisted of the following at December 31:
1996 1995 1994
----- ----- -----
(DOLLARS IN MILLIONS)
HELD TO MATURITY (at amortized cost)
U.S. Treasury and Federal agencies .................................... $ 859 $ 824 $1,669
State and political subdivisions ...................................... 1,130
Asset-backed securities ............................................... 2,347
Other investments ..................................................... 41
------ ------ ------
Total ............................................................. $ 859 $ 824 $5,187
====== ====== ======
AVAILABLE FOR SALE (at fair value)
U.S. Treasury and Federal agencies .................................... $4,643 $2,284 $3,319
State and political subdivisions ...................................... 1,559 1,306
Asset-backed securities ............................................... 1,275 1,665
Other investments ..................................................... 1,051 280 163
------ ------ ------
Total ............................................................. $8,528 $5,535 $3,482
====== ====== ======
On November 15, 1995, the Financial Accounting Standards Board issued a
Special Report, "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities." In accordance with
provisions in that Special Report, State Street chose to reclassify certain
securities from held to maturity to available for sale on December 1, 1995. At
the date of transfer the amortized cost of those securities was $3.8 billion and
the net unrealized gain on those securities was $3 million, which was recorded
net of tax in stockholders' equity at the date of transfer.
The maturities of investment securities at December 31, 1996 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 ....................... $ 442 6.13% $ 417 5.73%
====== ======
AVAILABLE FOR SALE
U.S. Treasury and Federal
agencies ....................... $1,803 6.04 $2,688 5.97 $ 63 6.22% $ 89 6.72%
State and political
subdivisions ................... 451 6.07 864 6.30 141 6.02 103 6.95
Asset-backed securities .......... 741 6.09 478 6.09 34 6.09 22 6.09
Other investments ................ 368 5.94 616 5.67 39 6.13 28 6.13
------ ------ ---- ----
Total ........................ $3,363 $4,646 $277 $242
====== ====== ==== ====
LOAN PORTFOLIO
Domestic and non-U.S. loans at December 31 and average loans outstanding for
the years ended December 31, were as follows:
1996 1995 1994 1993 1992
--------- --------- -------- -------- --------
(DOLLARS IN MILLIONS)
Domestic:
Commercial and financial $2,982 $2,573 $2,070 $1,889 $1,519
Real estate ............ 118 96 101 94 105
Consumer ............... 40 47 41 46 65
Lease financing ........ 409 315 342 255 252
------ ------ ------ ------ ------
Total domestic ....... 3,549 3,031 2,554 2,284 1,941
------ ------ ------ ------ ------
Non-U.S.:
Commercial and industrial 764 634 511 296 51
Banks and other
financial institutions 78 57 52 26 9
Government and official
institutions ......... 1 2 1 1 1
Lease financing ........ 311 256 110 71
Other .................. 10 6 5 2 2
------ ------ ------ ------ ------
Total Non-U.S. ....... 1,164 955 679 396 63
------ ------ ------ ------ ------
Total loans .......... $4,713 $3,986 $3,233 $2,680 $2,004
====== ====== ====== ====== ======
Average loans outstanding $4,513 $3,664 $3,401 $2,576 $2,070
====== ====== ====== ====== ======
Loan maturities for selected loan categories at December 31, 1996 were as
follows:
AFTER ONE
ONE YEAR BUT WITHIN AFTER
OR LESS FIVE YEARS FIVE YEARS
-------- ---------- ----------
(DOLLARS IN MILLIONS)
Commercial and financial ............ $2,515 $338 $129
Real estate ......................... 46 59 13
Non-U.S. ............................ 849 4 311
The following table shows the classification of the above loans due after
one year according to sensitivity to changes in interest rates:
(DOLLARS IN MILLIONS)
Loans with predetermined interest rates ......... $480
Loans with floating or adjustable interest rates 374
----
Total ....................................... $854
====
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 $3 million for each of the years ended
December 31, 1996 and 1995.
NON-ACCRUAL LOANS
It is State Street's policy to place loans on a non-accrual basis when they
become 60 days past due as to either principal or interest, or when in the
opinion of management, full collection of principal or interest is unlikely.
Loans eligible for non-accrual, but considered both well secured and in the
process of collection, are treated as exceptions and may be exempted from
nonaccural status. When the loan is placed on non-accrual, the accrual of
interest is discontinued and previously recorded but unpaid interest is reversed
and charged against net interest revenue. Past due loans are loans on which
principal or interest payments are over 90 days delinquent, but where interest
continues to be accrued.
Nonaccural loans totaled $12 million, $16 million, $23 million, $27 million
and $40 million as of December 31, 1996 through 1992, respectively. Nonaccrual
loans included no loans to non-U.S. customers except for 1996 and 1992,
respectively, which were $6 million and less than $1 million.
Past due loans totaled less than $1 million as of December 31, 1996 through
1992. Past due loans included no loans to non-U.S. customers, except for 1992,
which was less than $1 million.
The interest revenue for 1996 which would have been recorded related to
these non-accrual loans is less than $1 million for domestic loans. The interest
revenue that was recorded on these non-accrual loans was $.3 million all of
which relates to domestic loans.
ALLOWANCE FOR LOAN LOSSES
The changes in the allowance for loan losses for the years ended December
31, were as follows:
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
Balance at beginning of year:
Domestic ......................... $54 $53 $51 $57 $64
Non-U.S. ......................... 9 5 3 1 2
--- --- --- --- ---
Total allowance for loan losses 63 58 54 58 66
--- --- --- --- ---
Provision for loan losses:
Domestic ......................... 7 4 9 10 12
Non-U.S. ......................... 1 4 2 1
--- --- --- --- ---
Total provision for loan losses 8 8 11 11 12
--- --- --- --- ---
Loan charge-offs:
Commercial and financial ......... 4 5 10 15 10
Real estate ...................... 1 2 10
Consumer ......................... 1 2
Non-U.S. ......................... 1 1 1
--- --- --- --- ---
Total loan charge-offs ......... 5 7 10 18 23
--- --- --- --- ---
Recoveries:
Commercial and financial ......... 3 2 2 1 1
Real estate ...................... 3 1 1
Consumer ......................... 1 1 1
Non-U.S. ......................... 1 1
--- --- --- --- ---
Total recoveries ............... 7 4 3 2 3
--- --- --- --- ---
Net loan charge-offs (recoveries) (2) 3 7 16 20
--- --- --- --- ---
Allowance of non-U.S. subsidiary
purchased ........................ 1
Balance at end of year:
Domestic ......................... 63 54 53 51 57
Non-U.S. ......................... 10 9 5 3 1
--- --- --- --- ---
Total allowance for loan losses $73 $63 $58 $54 $58
=== === === === ===
Ratio of net charge-offs (recoveries)
to average loans outstanding ..... (.02)% .07% .23% .63% .97%
=== === === === ===
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.
State Street adopted Statement of Financial Accounting Standards ("SFAS")
No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS
No. 118 in 1995. SFAS No. 114 requires that the allowance for loan losses
related to certain loans be evaluated based on discounted cash flows using the
loan's initial effective interest rate or the fair value of the underlying
collateral for certain collateral dependent loans. Prior to 1995, the allowance
for loan losses related to these loans was based on undiscounted cash flows or
the fair value of the collateral for collateral dependent loans. The adoption of
SFAS No. 114 did not have a material effect on the financial statements of State
Street.
While the allowance is established to absorb probable losses inherent in the
total loan portfolio, management allocates the allowance for loan losses to
specific loans, selected portfolio segments and certain off-balance sheet
exposures and commitments. Adversely classified loans in excess of $1 million
are individually reviewed to evaluate risk of loss and assigned a specific
allocation of the allowance. The allocations are based on an assessment of
potential risk of loss and include evaluations of the borrowers' financial
strength, discounted cash flows, collateral, appraisals and guarantees. The
allocations to portfolio segments and off-balance sheet exposures are based on
management's evaluation of relevant factors, including the current level of
problem loans and current economic trends. These allocations are also based on
subjective estimates and management judgment, and are subject to change from
quarter-to-quarter. In addition, a portion of the allowance remains unallocated
as a general reserve for the entire loan portfolio.
The provision for loan losses is a charge to earnings for the current period
which is required to maintain the total allowance at a level considered adequate
in relation to the level of risk in the loan portfolio. The provision for loan
losses was $8.0 million in 1996 and 1995.
At December 31, 1996, the allowance for loan losses was $73 million, or
1.54% of loans. This compares with an allowance of $63 million, or 1.59% of
loans a year ago. This decline reflects improvement in measures of credit
quality and a continuing satisfactory outlook for general economic conditions
and its effect on borrowers.
CREDIT QUALITY
At December 31, 1996, loans comprised 15% of State Street's assets. State
Street's loan policies limit the size of individual loan exposures to reduce
risk through diversification.
In 1996, net recoveries were $2 million versus net charge-offs of $3 million
in 1995. Net recoveries as a percentage of average loans were .02% compared to
net charge-offs as a percentage of average loans of .07% for 1995.
At December 31, 1996, total non-performing assets were $13 million, a $6
million decrease from year-end 1995. For 1996 and 1995, respectively,
non-performing assets include $12 million and $16 million of non-accrual loans
and less than $1 million and $3 million of other real estate owned. In 1996,
loans placed on non-accrual status were more than offset by payments and
charge-offs. The decline in other real estate owned resulted from property
sales.
In 1996, the measures of credit quality improved, as did the general
economic outlook. We expect these levels of credit quality to continue in 1997.
Actual results may differ materially from these forward looking statements due
to deterioration in the economic conditions and other unforeseen factors.
CROSS-BORDER OUTSTANDINGS
Countries with which State Street has cross-border outstandings (primarily
deposits and letters of credit to banks and other financial institutions) of at
least 1% of its total assets at December 31, were as follows:
1996 1995 1994
------- ------- -------
(DOLLARS IN MILLIONS)
Japan ............................................. $1,419 $ 921 $1,708
Germany ........................................... 1,051 728 438
France ............................................ 883 852 462
United Kingdom .................................... 806 834 543
Australia ......................................... 741 784 649
Canada ............................................ 675 359 265
Italy ............................................. 628 620 528
Netherlands ....................................... 622 487 102
Belgium ........................................... 350 337
------ ------ ------
Total outstandings ............................ $7,175 $5,922 $4,695
====== ====== ======
Aggregate of cross-border outstandings in countries having between .75% and
1% of total assets at December 31, 1996 was $276 million (Switzerland); at
December 31, 1995 was $240 million (Austria); and at December 31, 1994 was $177
million (Switzerland).
DEPOSITS
The average balance and rates paid on interest-bearing deposits for the
years ended December 31, were as follows:
1996 1995 1994
------------------- ----------------- -----------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
--------- -------- ------- -------- ------- --------
(DOLLARS IN MILLIONS)
Domestic:
Noninterest-bearing
deposits ........ $ 4,586 $4,063 $4,640
Savings deposits .. 2,097 4.10% 1,913 4.45% 1,992 2.85%
Time deposits ..... 150 5.26 131 5.47 172 4.52
------- ------ ------
Total domestic .. $ 6,833 $6,107 $6,804
------- ------ ------
Non-U.S.:
Noninterest-bearing
deposits ........ $ 52 $ 50 $ 61
Interest-bearing .. 10,372 3.19 8,470 3.82 7,392 2.93
------- ------ ------
Total non-U.S. .. $10,424 $8,520 $7,453
======= ====== ======
Maturities of domestic certificates of deposit of $100,000 or more at
December 31, 1996, were as follows:
(DOLLARS IN THOUSANDS)
3 months or less ....................................... $42,857
3 to 6 months .......................................... 9,965
6 to 12 months ......................................... 9,748
Over 12 months ......................................... 341
-------
Total .............................................. $62,911
=======
At December 31, 1996 substantially all foreign time deposit liabilities were
in amounts of $100,000 or more. Included in noninterest-bearing deposits were
non-U.S. deposits of $28 million each for the years ended December 31, 1996 and
1995 and $45 million at December 31, 1994.
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:
1996 1995 1994
---- ---- ----
Net income to:
Average stockholders' equity ...... 18.1% 16.7% 17.2%
Average total assets .............. .99 .94 .97
Dividends declared to net income .... 20.9 22.7 20.8
Average equity to average assets .... 5.5 5.7 5.6
Risk-based capital ratios:
Tier 1 capital .................... 13.4 14.0 13.6
Total capital ..................... 13.6 14.5 14.2
Leverage Ratio ...................... 5.9 5.6 5.6
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:
SECURITIES SOLD UNDER
FEDERAL FUNDS PURCHASED REPURCHASE AGREEMENTS
------------------------------ -----------------------------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
Balance at December 31, ..... $117 $467 $113 $7,387 $5,121 $4,798
Maximum outstanding at any
month end ................. 454 971 745 10,013 7,372 6,684
Average outstanding during
the year .................. 357 504 411 7,819 7,080 4,958
Weighted average interest
rate at end of year ....... 5.05% 3.47% 5.28% 5.20% 5.17% 4.91%
Weighted average interest
rate during the year ...... 5.18 5.89 3.90 5.05 5.65 4.07
COMPETITION
State Street operates in a highly competitive environment in all areas of
its business on a worldwide basis, including financial asset servicing,
investment management and commercial lending. In addition to facing competition
from other deposit-taking institutions, State Street faces competition from
investment management firms, private trustees, insurance companies, mutual
funds, broker/dealers, investment banking firms, law firms, benefits
consultants, leasing companies and business service companies. As State Street
expands globally, additional sources of competition are encountered.
EMPLOYEES
At December 31, 1996, State Street had 12,792 employees, of whom 12,463 were
full-time.
REGULATION AND SUPERVISION
State Street is registered with the Board of Governors of the Federal
Reserve System (the "Board") as a bank holding company pursuant to the Bank
Holding Company Act of 1956, as amended (the "Act"). The Act, with certain
exceptions, limits the activities that may be engaged in by State Street and its
non-bank subsidiaries, which includes non-bank companies which it owns or
controls more than 5% of a class of voting shares, to those which are deemed by
the Board to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. In making such determination, the Board must
consider whether the performance of any such activity by a subsidiary of State
Street can reasonably be expected to produce benefits to the public, such as
greater convenience, increased competition or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices. The
Board is authorized to differentiate between activities commenced de novo and
those commenced by the acquisition in whole or in part of a going concern. The
Board may order a bank holding company to terminate any activity or its
ownership or control of a 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.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Act") generally permits bank holding companies to acquire banks
located in any state without regard as to whether the transaction is prohibited
under state law. In addition, it generally permits national and state chartered
banks to merge across state lines (and thereby create interstate branches)
commencing June 1, 1997. Under the provisions of the Interstate Act, states are
permitted to "opt out" of this latter interstate branching authority by taking
action prior to the commencement date. States may also "opt in" early (i.e.,
prior to June 1, 1997) to the interstate merger provisions. Further, the
Interstate Act provides that states may act affirmatively to permit de novo
branching by banking institutions across state lines.
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 on the return on equity and assets and capital ratio table of
this report.
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.
Federal Reserve Board regulations require a bank holding company to act as a
source of financial and managerial strength to its subsidiary banks. Under this
regulation, State Street may be required to commit resources to its subsidiary
banks in circumstances where it might not do so absent such regulation. In the
event of a bank holding company's bankruptcy, any commitment by the bank holding
company to a Federal bank regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority payment.
The primary banking agency responsible for regulating State Street and its
subsidiaries, including State Street Bank, for both domestic and international
operations is the Federal Reserve Bank of Boston. State Street is also subject
to the Massachusetts bank holding company statute. The Massachusetts statute
requires prior approval by the Massachusetts Board of Bank Incorporation for the
acquisition by State Street of more than 5% of the voting shares of any
additional bank and for other forms of bank acquisitions.
State Street's banking subsidiaries are subject to supervision and
examination by various regulatory authorities. State Street Bank is a member of
the Federal Reserve System and the Federal Deposit Insurance Corporation (the
"FDIC") and is subject to applicable Federal and state banking laws and to
supervision and examination by the Federal Reserve Bank of Boston, as well as by
the Massachusetts Commissioner of Banks, the FDIC, and the regulatory
authorities of those countries in which a branch of State Street Bank is
located. Other subsidiary banks are subject to supervision and examination by
the Office of the Comptroller of the Currency or by the appropriate state
banking regulatory authorities of the states in which they are located. State
Street's non-U.S. banking subsidiaries are also subject to regulation by the
regulatory authorities of the countries in which they are located. The capital
of each of these banking subsidiaries is in excess of the minimum legal capital
requirements as set by those authorities.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") broadened the enforcement powers of the Federal banking agencies,
including increased power to impose fines and penalties, over all financial
institutions, including bank holding companies and commercial banks. As a result
of FIRREA, State Street Bank and any or all of its subsidiaries can be held
liable for any loss incurred by, or reasonably expected to be incurred by, the
FDIC after August 9, 1989, in connection with (a) the default of State Street
Bank or any other subsidiary bank or (b) any assistance provided by the FDIC to
State Street Bank or any other subsidiary bank in danger of default. The Crime
Control Act of 1990 further broadened the enforcement powers of the Federal
banking agencies in a significant number of areas.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
has as its primary objectives to recapitalize the Bank Insurance Fund and
strengthen the regulation and supervision of financial institutions.
Pursuant to the FDICIA each Federal banking agency has adopted prompt
corrective action regulations for the institutions that it regulates. The
statute requires or permits the agencies to take certain supervisory actions
when an insured depository institution falls within one of five specifically
enumerated capital categories. It also restricts or prohibits certain activities
and requires the submission of a capital restoration plan when an insured
institution becomes undercapitalized. The regulations establish the numerical
limits for five capital categories and establish procedures for issuing and
contesting prompt corrective action directives. To be within the category "well
capitalized", an insured depository institution must have a total risk-based
capital ratio of 10.0 percent or greater, a Tier 1 risk-based capital ratio of
6.0 percent or greater, and a leverage ratio of 5.0 percent or greater, and the
institution must not be subject to an order, written agreement, capital
directive, or prompt corrective action directive to meet specific capital
requirements. An insured institution is "adequately capitalized" if it has a
total risk-based capital ratio of 8.0 percent or greater, a Tier 1 risk-based
capital ratio of 4.0 percent or greater, and a leverage ratio 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, 1996.
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 accepted investments and activities.
Other FDICIA regulations adopted require independent audits, an independent
audit committee of the bank's board of directors, stricter truth- in-savings
provisions, and standards for real estate lending. The FDICIA amended deposit
insurance coverage and the FDIC 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 adopted
safety and soundness standards for banks in a number of areas including:
internal controls, internal audit systems, information systems, credit
underwriting, interest rate risk, executive compensation and minimum earnings.
The agencies have also adopted rules to revise risk-based capital standards to
take account of interest rate risk, as required by FDICIA.
Legislation enacted as part of the Omnibus Budget Reconciliation Act of 1993
provides that deposits in U.S. offices and certain claims for administrative
expenses and employee compensation against a U.S. insured depository institution
which has failed will be afforded a priority over other general unsecured
claims, including deposits in non-U.S. offices and claims under non-depository
contracts in all offices, against such an institution in the "liquidation or
other resolution" of such 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.
The right of State Street to participate as a stockholder in any distribution of
assets of State Street Bank upon its liquidation or reorganization or otherwise
is subject to the prior claims by creditors of State Street Bank, including
obligations for Federal funds purchased and securities sold under repurchase
agreements, as well as deposit liabilities. Payment of dividends by State Street
Bank is subject to provisions of the Massachusetts banking law which provides
that dividends may be paid out of net profits provided (i) capital stock and
surplus remain unimpaired, (ii) dividend and retirement fund requirements of any
preferred stock have been met, (iii) surplus equals or exceeds capital stock,
and (iv) there are deducted from net profits any losses and bad debts, as
defined, in excess of reserves specifically established therefore. Under the
Federal Reserve Act, the approval of the Board of Governors of the Federal
Reserve System would be required if dividends declared by the Bank in any year
would exceed the total of its net profits for that year combined with retained
net profits for the preceding two years, less any required transfers to surplus.
Under applicable Federal and state law restrictions, at December 31, 1996, State
Street Bank could have declared and paid dividends of $486 million without
regulatory approval. Future dividend payments of the Bank and non-bank
subsidiaries cannot be determined at this time.
ECONOMIC CONDITIONS AND GOVERNMENT POLICIES
Economic policies of the government and its agencies influence the operating
environment of State Street. Monetary policy conducted by the Federal Reserve
Board directly affects the level of interest rates and overall credit conditions
of the economy. Policy instruments utilized by the Federal Reserve Board include
open market operations in U.S. Government securities, changes in reserve
requirements for depository institutions, and changes in the discount rate and
availability of borrowing from the Federal Reserve.
ITEM 2. PROPERTIES
State Street's headquarters are located in the State Street Bank Building, a
34-story building at 225 Franklin Street, Boston, Massachusetts, which was
completed in 1965. State Street leases approximately 500,000 square feet (or
approximately 54% of the space in this building). The initial lease term was 30
years with two successive extension options of 20 years each at negotiated
rental rates. State Street exercised the first of these two options which became
effective on January 1, 1996 for a term of 20 years.
State Street owns five buildings located in Quincy, Massachusetts, a suburb
of Boston. Four of the buildings, containing a total of approximately 1,365,000
square feet, function as State Street Bank's operations facilities. The fifth
building, with 186,000 square feet, is leased to Boston Financial Data Services,
Inc., a 50% owned affiliate. Additionally, State Street owns a 92,000 square
foot building 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, 1996, the aggregate mortgage and lease payments,
net of sublease revenue, payable within one year amounted to $42 million 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 ........... 56 Chairman and Chief Executive Officer
David A. Spina ............... 54 President and Chief Operating Officer
Dale L. Carleton ............. 51 Executive Vice President
Susan Comeau ................. 55 Executive Vice President
Ronald E. Logue .............. 51 Executive Vice President
Nicholas A. Lopardo .......... 49 Executive Vice President
Ronald L. O'Kelley ........... 51 Executive Vice President, Chief
Financial Officer and Treasurer
Albert E. Petersen ........... 50 Executive Vice President
William M. Reghitto .......... 54 Executive Vice President
David J. Sexton .............. 56 Executive Vice President
John R. Towers ............... 55 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. O'Kelley and Towers, all of the executive
officers have been officers of State Street for five years or more.
Mr. Sexton retired effective January 1, 1997.
Mr. O'Kelley became an officer of State Street in December, 1995. Prior to
joining State Street, he was Vice President and Chief Financial Officer of
Douglas Aircraft Company, a subsidiary of McDonnell Douglas Corporation. Prior
to that he was Senior Vice President and Chief Financial Officer of Rolls-
Royce, Inc.
Mr. Towers became an officer of State Street in 1994. Prior to joining
State Street he was Senior Vice President and Department Executive of
Securities Processing at Bank of Boston. Prior to that he was Senior Vice
President and Division Head of Mutual Funds at U.S. Trust Company of New York.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information concerning the market prices of and dividends on State Street's
common stock during the past two years appears on page 19 of State Street's 1996
Annual Report to Stockholders and is incorporated by reference. There were 5,752
stockholders of record at December 31, 1996. State Street's common stock is
listed for trading on the New York Stock Exchange, ticker symbol: STT. State
Street's common stock is also listed on the Boston and Pacific Stock Exchanges.
On February 20, 1997, the Board of Directors of State Street voted a
two-for-one stock split in the form of a 100 percent stock dividend, subject to
the approval of an increase in the authorized shares by the stockholders at the
annual meeting on April 16, 1997.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is set forth on page 7 of State
Street's 1996 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 1996 Annual
Report to Stockholders on pages 2 through 5 and pages 8 through 21 and is
incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, Report of Independent Auditors and
Supplemental Financial Data appear on pages 22 through 43 of State Street's 1996
Annual Report to Stockholders and are incorporated by reference. In addition,
discussion of restrictions on transfer of funds from State Street Bank to
Registrant is included in Part I, Item 1, "Dividends."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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 1997 Annual Meeting of Stockholders
under the caption "Election of Directors." Such information is incorporated by
reference.
Information concerning State Street's executive officers appears under the
caption "Executive Officers of the Registrant" in Item 4. A of this Report.
Information concerning compliance with Section 16(a) of the Securities
Exchange Act appears on page 9 of State Street's Proxy Statement for the 1997
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 10 through 18 in State Street's Proxy Statement for the 1997
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
1997 Annual Meeting of Stockholders. Such information is incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
appears on page 9 in State Street's Proxy Statement for the 1997 Annual Meeting
of Stockholders under the caption "Certain Transactions." Such information is
incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS 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, 1996 are
incorporated by reference in Item 8 hereof:
Consolidated Statement of Income -- Years ended December 31,
1996, 1995 and 1994
Consolidated Statement of Condition -- December 31, 1996 and 1995
Consolidated Statement of Cash Flows -- Years ended December 31,
1996, 1995 and 1994
Consolidated Statement of Changes in Stockholders' Equity --
Years ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
Report of Independent Auditors
(2) Financial Statement Schedules -- Schedules to the consolidated
financial statements required by Article 9 of Regulation S-X are not
required under the related instructions, are inapplicable, or the
information is contained herein and therefore have been omitted.
(3) EXHIBITS
A list of the exhibits filed or incorporated by reference is as
follows:
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, 1995 and incorporated by reference)
3.2 By-laws as amended (filed with the Securities and Exchange
Commission as Exhibit 3.2 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1991 and
incorporated by reference)
3.3 Certificate of Designation, Preferences and Rights (filed
with the Securities and Exchange Commission as Exhibit 3.1
to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991 and incorporated by reference)
EXHIBIT 4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
4.1 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, 1993 between State Street
Boston Corporation and The First National Bank of Boston,
as trustee (filed with the Securities and Exchange
Commission as Exhibit 4 to the Registrant's Current Report
on Form 8-K dated October 8, 1993 and incorporated by
reference)
4.6 Instrument of Resignation, appointment, and acceptance,
dated as of February 14, 1996 between State Street Boston
Corporation, The First National Bank of Boston (resigning
trustee) and Fleet National Bank of Massachusetts
(successor trustee) (filed with the Securities and
Exchange Commission as Exhibit 4.6 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995
and incorporated by reference)
4.7 (Note: Registrant agrees to furnish to the Securities and
Exchange Commission upon request a copy of any other
instrument with respect to long-term debt of the
Registrant and its subsidiaries. Such other instruments
are not filed herewith since no such instrument relates to
outstanding debt in an amount greater than 10% of the
total assets of the Registrant and its subsidiaries on a
consolidated basis)
EXHIBIT 10. MATERIAL CONTRACTS
10.1 State Street Boston Corporation 1984 Stock Option Plan as
amended (filed with the Securities and Exchange Commission
as Exhibit 4(a) to Registrant's Registration Statement on
Form S-8 (File No. 2-93157) and incorporated by reference)
10.2 State Street Boston Corporation 1985 Stock Option and
Performance Share Plan as amended (filed with the
Securities and Exchange Commission as Exhibit 10.1 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1985 and incorporated by reference)
10.3 State Street Boston Corporation 1989 Stock Option Plan as
amended (filed with the Securities and Exchange Commission
as Exhibit 10.1 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1989 and incorporated by
reference)
10.4 State Street Boston Corporation 1990 Stock Option and
Performance Share Plan as amended (filed with the
Securities and Exchange Commission as Exhibit 10.1 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990 and incorporated by reference)
10.5 State Street Boston Corporation Supplemental Executive
Retirement Plan, together with individual benefit
agreements (filed with the Securities and Exchange
Commission as Exhibit 10.1 to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1991 and
incorporated by reference)
10.5A Amendment No. 1 dated as of October 19, 1995, to State
Street Boston Corporation Supplemental Executive
Retirement Plan (filed with the Securities and Exchange
Commission as Exhibit 10.6A to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995 and
incorporated by reference)
10.6 Individual Pension Agreement with Marshall N. Carter
(filed with the Securities and Exchange Commission as
Exhibit 10.10 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991 and incorporated by
reference)
10.7 Individual Pension Agreement with A. Edward Allinson dated
September 14, 1990 (filed with the Securities and Exchange
Commission as Exhibit 10.10 to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1991 and
incorporated by reference)
10.8 Individual Pension Agreement with Albert E. Petersen dated
April 5, 1992 (filed with the Securities and Exchange
Commission as Exhibit 10.12 to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993 and
incorporated by reference)
10.9 Revised Termination Benefits Arrangement with Marshall N.
Carter (filed with the Securities and Exchange Commission
as Exhibit 10.10 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1995 and incorporated
by reference)
10.10 1994 Stock Option and Performance Unit Plan (filed with
the Securities and Exchange Commission as Exhibit 10.17 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 and incorporated by reference)
10.10A Amendment No. 1 dated as of October 19, 1995, to 1994
Stock Option and Performance Unit Plan (filed with the
Securities and Exchange Commission as Exhibit 10.13A to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated by reference)
10.11 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)
10.12 Supplemental Defined Benefit Pension Plan for Senior
Executive Officers (filed with the Securities and Exchange
Commission as Exhibit 10.21 to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994 and
incorporated by reference)
10.13 Nonemployee Director Retirement Plan (filed with the
Securities and Exchange Commission as Exhibit 10.22 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated by reference)
10.14 State Street Global Advisors Incentive Plan for 1996
(filed with the Securities and Exchange Commission as
Exhibit 10.19 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995 and incorporated by
reference)
10.15 Forms of Employment Agreement with Officers (Levels 1, 2,
and 3) approved by the Board of Directors on September,
1995 (filed with the Securities and Exchange Commission as
Exhibit 10.20 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995 and incorporated by
reference)
10.16 Compensation agreement with Ronald L. O'Kelley (filed with
the Securities and Exchange Commission as Exhibit 10.21 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated by reference)
10.17 Senior Executives Annual Incentive Plan (filed herewith)
10.18 Executive Compensation Trust Agreement dated December 6,
1996 (Rabbi Trust) (filed herewith)
10.19 Junior Subordinated Debenture Indenture dated as of
December 15, 1996 between State Street Boston Corporation
and the First National Bank of Chicago (filed with the
Securities and Exchange Commission as Exhibit 1 to
Registrant's Current Report on Form 8-K dated February 27,
1997 and incorporated by reference)
10.20 Amended and Restated Trust Agreement dated as of December
15, 1996 relating to State Street Institutional Capital A
(filed with the Securities and Exchange Commission as
Exhibit 2 to Registrant's Current Report on Form 8-K dated
February 27, 1997 and incorporated by reference)
10.21 Capital Securities Guarantee Agreement dated as of
December 15, 1996 between State Street Boston Corporation
and the First National Bank of Chicago (filed with the
Securities and Exchange Commission as Exhibit 3 to
Registrant's Current Report on Form 8-K dated February 27,
1997 and incorporated by reference)
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, 1996 (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
EXHIBIT 27. FINANCIAL DATA SCHEDULE
27.1 Financial Data Schedule (such schedule is furnished for
information of the Securities and Exchange Commission and
is not to be deemed "filed" as part of Form 10-K or
otherwise subject to the liabilities of Section 18 of the
Securities Exchange Act of 1934)
(b) Reports on Form 8-K
A current report on Form 8-K dated December 12, 1996 was
filed by the Registrant with the Securities and Exchange
Commission which reported the issuance of $200 million of
30-year 7.94% Capital Securities.
SIGNATURES
Pursuant to the requirement 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 20, 1997, thereunto duly authorized.
STATE STREET BOSTON CORPORATION
By /s/ REX S. SCHUETTE
-------------------------------------
REX S. SCHUETTE,
Senior Vice President and Comptroller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 20, 1997 by the following persons on
behalf of the registrant and in the capacities indicated.
OFFICERS:
/s/ MARSHALL N. CARTER /s/ RONALD L. O'KELLEY
----------------------------------- -----------------------------------
MARSHALL N. CARTER, Chairman RONALD L. O'KELLEY, Executive
and Chief Executive Officer Vice President, Chief Financial
Officer and Treasurer
/s/ REX S. SCHUETTE
-----------------------------------
REX S. SCHUETTE, Senior Vice
President and Comptroller
DIRECTORS:
/s/ TENLEY E. ALBRIGHT /s/ JOSEPH A. BAUTE
----------------------------------- -----------------------------------
TENLEY E. ALBRIGHT JOSEPH A. BAUTE
/s/ JAMES I. CASH
----------------------------------- -----------------------------------
I. MACALLISTER BOOTH JAMES I. CASH
/s/ NADER F. DAREHSHORI
----------------------------------- -----------------------------------
TRUMAN S. CASNER NADER F. DAREHSHORI
/s/ ARTHUR L. GOLDSTEIN /s/ CHARLES F. KAYE
----------------------------------- -----------------------------------
ARTHUR L. GOLDSTEIN CHARLES F. KAYE
/s/ JOHN M. KUCHARSKI /s/ CHARLES R. LAMANTIA
----------------------------------- -----------------------------------
JOHN M. KUCHARSKI CHARLES R. LAMANTIA
/s/ DAVID B. PERINI /s/ DENNIS J. PICARD
----------------------------------- -----------------------------------
DAVID B. PERINI DENNIS J. PICARD
/s/ ALFRED POE /s/ BERNARD W. REZNICEK
----------------------------------- -----------------------------------
ALFRED POE BERNARD W. REZNICEK
/s/ DAVID A. SPINA /s/ ROBERT E. WEISSMAN
----------------------------------- -----------------------------------
DAVID A. SPINA ROBERT E. WEISSMAN
EXHIBIT INDEX
(FILED HEREWITH)
EXHIBIT 10. MATERIAL CONTRACTS
10.17 Senior Executives Annual Incentive Plan
10.18 Executive Compensation Trust Agreement dated December 6, 1996
(Rabbi Trust)
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, 1996
(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
EXHIBIT 27. FINANCIAL DATA SCHEDULE
27.1 Financial Data Schedule (such schedule is furnished for information
of the Securities and Exchange Commission and is not to be deemed
"filed" as part of Form 10-K or otherwise subject to the
liabilities of Section 18 of the Securities Exchange Act of 1934)