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State Street Corp – ‘10-K’ for 12/31/93 – EX-13

As of:  Wednesday, 3/30/94   ·   For:  12/31/93   ·   Accession #:  950156-94-9   ·   File #:  0-05108

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 3/30/94  State Street Corp                 10-K       12/31/93   16:275K                                   Dean George H Co/FA

Annual Report   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        State Street Boston Corp. Form 10-K                   19    123K 
 2: EX-10       Material Contracts                                     6±    29K 
 3: EX-10       Material Contracts                                     2±    11K 
 4: EX-10       Material Contracts                                     1      8K 
 5: EX-10       Material Contracts                                     2±    11K 
 6: EX-10       Material Contracts                                     2±    10K 
 7: EX-10       Material Contracts                                     2±     9K 
 8: EX-10       Material Contracts                                    13±    60K 
 9: EX-11       Statement Re Computation of Per Share Earnings         1     10K 
10: EX-12       Statement Re Computation of Ratios                     2±    11K 
11: EX-13       Annual Report to Stockholders                          2±    12K 
12: EX-13       Annual Report to Stockholders                         24±    97K 
13: EX-13       Annual Report to Stockholders                          2±    13K 
14: EX-13       Annual Report to Stockholders                         20    106K 
15: EX-21       Subsidiaries of the Registrant                         2±    11K 
16: EX-23       Consents of Experts and Counsel                        1      8K 


EX-13   —   Annual Report to Stockholders

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

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