Back to GetFilings.com
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------------------
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-5108
STATE STREET CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS
(State or other jurisdiction
of incorporation) 04-2456637
(I.R.S. Employer
225 Franklin Street Identification No.)
Boston, Massachusetts
(Address of principal 02110
executive office) (Zip Code)
617-786-3000
(Registrant's telephone number, including area code)
-----------------------------
Securities registered pursuant to Section 12(b) of the Act:
(Title of Class) (Name of each exchange on which registered)
- -------------------------------------- --------------------------------------------
Common Stock, $1 par value Boston Stock Exchange
Preferred share purchase rights New York Stock Exchange
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, 1999 was $12,240,882,000.
The number of shares of the Registrant's Common Stock outstanding on February
28, 1999 was 160,883,337.
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, 1998
(Parts I and II)
(2) The Registrant's definitive Proxy Statement dated March 12, 1999
(Part III)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATE STREET CORPORATION
FORM 10-K
For the Year Ended December 31, 1998
INDEX
Page
Number
PART I
Item 1 Business ................................................................................. 1 - 14
Item 2 Properties ............................................................................... 15
Item 3 Legal Proceedings ........................................................................ 15
Item 4 Submission of Matters to a Vote of Security Holders ...................................... 15
Item 4A Executive Officers of the Registrant ..................................................... 16
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters .................... 17
Item 6 Selected Financial Data .................................................................. 17
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operation ..... 17
Item 7A Quantitative and Qualitative Disclosures about Market Risk ............................... 17
Item 8 Financial Statements and Supplementary Data .............................................. 17
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..... 17
PART III
Item 10 Directors and Executive Officers of the Registrant ....................................... 18
Item 11 Executive Compensation ................................................................... 18
Item 12 Security Ownership of Certain Beneficial Owners and Management ........................... 18
Item 13 Certain Relationships and Related Transactions ........................................... 18
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K ......................... 19 - 21
Signatures ...................................................................................... 22
Exhibits
PART I
Item 1. Business
The business of State Street Corporation and its subsidiaries is further
described in the "Financial Review" section of State Street Corporation's 1998
Annual Report to Stockholders, which section comprises Management's Discussion
and Analysis of Financial Condition and Results of Operation for the
Corporation; such description and information and analysis is included in
Exhibit 13 of this report and is incorporated by reference.
General Development of Business
State Street Corporation ("State Street" or the "Corporation") is a bank holding
company organized under the laws of the Commonwealth of Massachusetts and is one
of the world's leading specialists in serving institutional investors and
provides a full range of products and services for large portfolios of
investment assets.
State Street was organized in 1970 and conducts its business principally through
its subsidiary, State Street Bank and Trust Company ("State Street Bank" or the
"Bank"), and 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, services
for institutional investors and investment management, with $4.8 trillion of
assets under custody and $485 billion of assets under management at year-end
1998. Customers include mutual funds and other collective investment funds,
corporate and public pension funds, corporations, unions and non-profit
organizations in and outside of the United States. For information as to
non-U.S. activities, refer to Note V which appears in the Notes to Financial
Statements in State Street's 1998 Annual Report to Stockholders. Such
information is incorporated by reference.
Services are provided from 30 offices in the United States, as well as from
offices in Australia, Austria, Belgium, Canada, Cayman Islands, Chile, Czech
Republic, France, Germany, Ireland, Japan, Luxembourg, Netherlands Antilles,
Netherlands, New Zealand, People's Republic of China, Russia, Singapore, South
Korea, Switzerland, Taiwan, United Arab Emirates and the 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: Services for Institutional
Investors, Investment Management and Commercial Lending. In 1998, 67% of income
before income taxes came from services for institutional investors, 19% came
from commercial lending and 14% from investment management. For additional
information on State Street's lines of business, see pages 22 and 23 of State
Street's 1998 Annual Report to Stockholders, under the caption "Lines of
Business", which information is incorporated by reference.
Services for Institutional Investors. Services for institutional investors
includes accounting, custody, daily pricing and information services for
investment portfolios. Customers include mutual funds and other collective
investment funds, corporate and public pension plans, corporations, investment
managers, non-profit organizations, unions, and other holders of investment
assets. Institutional investors are offered other State Street services,
including foreign exchange, cash management, securities lending, fund
administration, recordkeeping, banking services, and deposit and short-term
investment facilities. These services support institutional investors in
developing and executing their strategies, enhancing their returns, and
evaluating and managing risk.
With $2.1 trillion of mutual fund assets under custody, State Street is the
largest mutual fund custodian and accounting agent in the United States. State
Street began providing mutual fund services in 1924. Customers who sponsor the
U.S. mutual funds that State Street services include investment companies,
broker/dealers, insurance companies and others. In addition, State Street
services offshore mutual funds and collective investment funds in other
countries.
State Street is distinct from other mutual fund service providers because
customers make extensive use of a number of related services in addition to
custody. Additional services include fund accounting and administration, daily
pricing, accounting for multiple classes of shares, master/feeder accounting,
and services for offshore funds and local funds in locations outside the United
States. Shareholder services are provided through an affiliate, Boston Financial
Data Services, Inc.
State Street began servicing pension assets in 1974, and now has $2.3 trillion
of pension, insurance and other investment pool assets under custody for U.S.
customers. State Street has a leading share of the market for servicing
tax-exempt assets for corporate and public funds in the United States. Services
include custody, portfolio accounting, securities lending, information and
1
Item 1. Business (continued)
other related services for retirement plans and other financial asset portfolios
of corporations, public funds, investment managers, non-profit organizations,
unions and others. State Street provides global and domestic custody and
custody-related services for $362 billion in assets for customers outside the
United States.
State Street provides foreign exchange services to institutional investors
worldwide. These services include currency trading and currency research, risk
management and electronic execution services. State Street is a securities
lending agent providing collateral management and lending of securities issued
in 30 countries, acting as agent between institutional investors and
broker/dealers worldwide. State Street also provides repurchase agreements and
deposit services for the short-term cash needs associated with customers'
investment activities. Trading and arbitrage operations are conducted with
government securities and other financial instruments.
Investment Management. State Street was a pioneer in the development of domestic
and international index funds. State Street offers an extensive range of
investment management services, including investment management for
corporations, public funds and other institutional investors; administration and
investment services for defined contribution and other employee benefit
programs; and investment management and other financial services for
high-net-worth individuals. These services are offered through State Street
Global Advisors ("SSgA[RegTM]"). SSgA offers a broad array of investment
strategies, including passive, enhanced and active management using quantitative
and fundamental methods for both global equities and global fixed income
securities. SSgA is a leading trustee and money manager for individuals. At
year-end 1998, institutional and personal trust assets under management totaled
$485 billion. Additionally, SSgA provides record-keeping and other services
attendant to its investment management activities, including services for 2.6
million defined contribution plan participants as of year-end 1998. SSgA has
offices worldwide, including offices in the following cities: Boston, Hong Kong,
Tokyo, London, Montreal, Munich, Paris and Sydney. In the United States, SSgA is
the largest manager of tax-exempt assets, the third-largest manager of defined
contribution plan assets and the third-largest manager of total assets.
Commercial Lending. State Street provides lending and other banking services for
regional middle-market companies, companies in selected industries and
institutional investor customers and provides lease financing to selected
industries. Other banking services include cash management and deposit services.
Competition
State Street operates in a highly competitive environment in all areas of its
business on a worldwide basis, including services to institutional investors,
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 and software companies. As
State Street expands globally, additional sources of competition are
encountered.
State Street believes there are certain key competitive considerations in these
markets, specifically, for investment asset servicing: price, quality of
service, efficiencies from scale and technological expertise, and quality and
scope of sales and marketing; for investment management: expertise, experience,
and the availability of related service offerings; and for commercial lending:
price and experience.
State Street's competitive success primarily depends upon its ability to
continue to develop and market new and innovative services and to adopt or
develop new technologies to bring new services to market in a timely fashion at
competitive prices; and to continue and expand its relationships with existing
and new customers.
Employees
At December 31, 1998, State Street had 16,816 employees, of whom 16,266 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 include non-bank companies for which State Street 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
2
Item 1. Business (continued)
benefits to the public, such as greater convenience, increased competition or
gains in efficiency. These benefits must 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
non-bank 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.
Bank holding companies, such as State Street, are subject to Federal Reserve
Board risk-based capital guidelines that require a minimum 8% ratio of total
capital to risk-weighted assets (including certain off-balance-sheet items) and
market-risk equivalents. At least 50% of total capital must consist of common
stockholders' equity, minority interest, non-cumulative perpetual preferred
stock, and a limited amount of cumulative perpetual preferred stock, less
disallowed intangibles and other adjustments ("Tier 1 capital"). The remainder
may consist of subordinated debt, other preferred stock, certain other
instruments and a limited amount of loan loss reserves and the unrealized gain
on available-for-sale equity securities ("Tier 2 capital"). At December 31,
1998, State Street's consolidated Tier 1 capital and total capital ratios were
14.1% and 14.4%, respectively.
In addition, bank holding companies are subject to Federal Reserve Board minimum
leverage ratio guidelines. These guidelines provide for a minimum ratio of Tier
1 capital to total average assets (the "leverage ratio") of 3% for bank holding
companies that meet certain specified criteria, including those having the
highest regulatory rating. All other bank holding companies generally are
required to maintain a leverage ratio of at least 3% plus an additional cushion
of 100 to 200 basis points. State Street's leverage ratio at December 31, 1998,
was 5.4%. The guidelines also provide that bank holding companies experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. The Federal Reserve Board has
indicated that it will also consider a "tangible Tier 1 capital leverage ratio"
(deducting all intangibles) and other indicia of capital strength in evaluating
proposals for expansion or new activities.
State Street Bank is subject to similar risk-based and leverage capital
requirements. State Street Bank was in compliance with the applicable minimum
capital requirements as of December 31, 1998. Neither State Street nor State
Street Bank has been advised of any specific minimum leverage ratio requirement
applicable to it.
Failure to meet capital requirements could subject a bank to a variety of
enforcement actions, including the termination of deposit insurance by the FDIC,
and to certain restrictions on its business, which are described further in this
section.
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 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. This is commonly referred to as an
"arms-length transaction". 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.
Under Federal Reserve Board policy, a bank holding company is required to act as
a source of financial and managerial strength to its subsidiary banks. Under
this policy, State Street is expected to commit resources to its subsidiary
banks in circumstances where it might not do so absent such policy. In the event
of a bank holding company's bankruptcy, any commitment by the bank holding
company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and entitled to a
priority payment.
3
Item 1. Business (continued)
The primary federal banking agency responsible for regulating State Street and
its subsidiaries, including State Street Bank, for both domestic and
international operations is the Federal Reserve System. 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 trust companies are subject to supervision and examination by the
Office of the Comptroller of the Currency, other offices of the Federal Reserve
System 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 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 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% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, and a
leverage ratio of 5.0% 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% or
greater, a Tier 1 risk-based capital ratio of 4.0% or greater, and a leverage
ratio or 4.0% or greater (or a leverage ratio of 3.0% or greater if the
institution has a composite rating of "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, 1998. For
further information as to the Corporation's capital position and capital
adequacy, refer to the Liquidity and Capital Resources portion of the Financial
Review section and to Note K to the Notes to Consolidated Financial Statements
which appear in State Street's 1998 Annual Report to Stockholders.
Such information is incorporated by reference.
The Federal Reserve Board adopted a final rule, as required by 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 exposure to "undercapitalized" banks to 25% of total
capital.
As required by 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 permitted 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. FDICIA amended deposit
insurance coverage, and the FDIC have implemented a rule specifying the
treatment of accounts to be insured up to $100,000.
4
Item 1. Business (continued)
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 revised risk-based capital standards to take into account
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 an 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 an 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. 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, 1998, State Street Bank
could have declared and paid dividends of $979 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 is applied by the Federal Reserve Board through 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. Government regulations of banks and bank
holding companies are intended primarily for the protection of depositors of the
banks, rather than of the stockholders of the institutions.
Factors Affecting Future Results
From time to time, information provided by State Street, statements made by its
employees, or information included in its filings with the Securities and
Exchange Commission (including this Form 10-K), may contain statements which are
not historic facts (so-called "forward looking statements"), including
statements about the Corporation's confidence and strategies and its expectation
about revenues and market growth, new technologies, services and opportunities,
and earnings. These statements may be identified by such forward looking
terminology as "expect", "look", "believe", "anticipate", "may", "will", or
similar statements or variations of such terms. These forward-looking statements
involve certain risks and uncertainties which could cause actual results to
differ materially. Factors that may cause such differences include, but are not
limited to, the factors discussed in this section and elsewhere in this Form
10-K. Each of these factors, and others, are also discussed from time to time in
the Corporation's other filings with the Securities and Exchange Commission,
including its reports on Form 10-Q.
Cross-border investing. Increases in cross-border investing by customers
worldwide benefit State Street's revenue. Future revenue may increase or
decrease depending upon the extent of increases or decreases in cross-border
investments made by customers or future customers.
Savings rate of individuals. State Street benefits from the savings of
individuals that are invested in mutual funds or in defined contribution plans.
Changes in savings rates or investment styles may affect revenue.
5
Item 1. Business (continued)
Value of worldwide financial markets. As worldwide financial markets increase or
decrease in value, State Street's opportunities to invest and service financial
assets may change. Since a portion of the Corporation's fees are based on the
value of assets under custody and management, fluctuations in worldwide
securities market valuations will affect revenue.
Dynamics of markets served. Changes in markets served, including the growth rate
of U.S. mutual funds, the pace of debt issuance, outsourcing decisions, and
mergers, acquisitions and consolidations among customers and competitors, can
affect revenue. In general, State Street benefits from an increase in the volume
of financial market transactions serviced.
State Street provides services worldwide. Global and regional economic factors
and changes or potential changes in laws and regulations affecting the
Corporation's business, including volatile currencies and changes in monetary
policy, and social and political instability, could affect results of
operations.
Interest rates. Market interest rate levels, the shape of the yield curve and
the direction of interest rate changes affect net interest revenue as well as
fiduciary compensation from securities lending. All else being equal, in the
short term, State Street's net interest revenue benefits from falling interest
rates and is negatively affected by rising rates because interest-bearing
liabilities reprice sooner than interest-earning assets.
Volatility of currency markets. The degree of volatility in foreign exchange
rates can affect the amount of foreign exchange trading revenue. In general,
State Street benefits from currency volatility.
Pace of pension reform. State Street expects to benefit from worldwide pension
reform that creates additional pools of assets that use custody and related
services and investment management services. The pace of pension reform may
affect the pace of revenue growth.
Pricing/competition. Future prices the Corporation is able to obtain for its
products may increase or decrease from current levels depending upon demand for
its products, its competitors' activities, and the introduction of new products
into the marketplace.
Pace of new business. The pace at which existing and new customers use
additional services and assign additional assets to State Street for management
or custody will affect future results. State Street believes that uncertainties
resulting from the Year-2000 issues could have an impact on new business for
1999 such that customers and potential customers of State Street will be less
inclined in the second half of 1999 to consider changing their business
relationships.
Business mix. Changes in business mix, including the mix of U.S. and non-U.S.
business, may affect future results.
Rate of technological change. Technological change creates opportunities for
product differentiation and reduced costs, as well as the possibility of
increased expenses. State Street's financial performance depends in part on its
ability to develop and market new and innovative services and to adopt or
develop new technologies that differentiate State Street's products or provide
cost efficiencies.
There are risks inherent in this process. These include rapid technological
change in the industry, the Corporation's ability to access technical and other
information from customers, and the significant and ongoing investments required
to bring new services to market in a timely fashion at competitive prices.
Further, there is risk that competitors may introduce services that could
replace or provide lower-cost alternatives to State Street's services.
State Street uses appropriate trademark, trade secret, copyright and other
proprietary rights procedures to protect its technology, and has applied for a
limited number of patents in connection with certain software programs. The
Corporation believes that patent protection is not a significant competitive
factor and that State Street's success depends primarily upon the technical
expertise and creative abilities of its employees and the ability of the
Corporation to continue to develop, enhance and market its innovative business
processes and systems. However, in the event a third-party asserts a claim of
infringement of its proprietary rights, obtained through patents or otherwise,
against the Corporation, State Street may be required to spend significant
resources to defend against such claims, develop a non-infringing program or
process, or obtain a license to the infringed process.
Year 2000 modifications. The costs and projected completion dates for State
Street's Year-2000 program are estimates. Factors that may cause material
differences include the availability and cost of systems and other personnel,
non-compliance of third-party providers, and similar uncertainties. If necessary
modifications and conversions are not completed in time, the Year-2000 issue
could affect State Street's performance.
6
Item 1. Business (continued)
Acquisitions and alliances. Acquisitions of complementary businesses and
technologies, and development of strategic alliances are an active part of State
Street's overall business strategy, and the Corporation has completed several
acquisitions and alliances in recent years. However, there can be no assurance
that services, technologies, key personnel, and businesses of acquired companies
will be effectively assimilated into State Street's business or service
offerings or that alliances will be successful.
European Economic and Monetary Union. The move to a common currency could affect
foreign exchange volumes and the level of deposits denominated in the euro or
the legacy currencies.
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 1998 Annual Report to Stockholders and is incorporated by reference
herein.
7
Item 1. Business (continued)
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.
===================================================================================================================
1998 1997
-------------------------------- ---------------------------------
Average Average Average Average
(Dollars in millions) Balance Interest Rate Balance Interest Rate
- ------------------------------------------------ ----------- ---------- --------- ------------ ---------- ---------
ASSETS
Interest-bearing deposits with banks(1) ........ $ 11,271 $ 537 4.76% $ 8,516 $ 415 4.88%
Securities purchased under resale agreements
and securities borrowed ....................... 12,876 691 5.37 6,413 354 5.52
Federal funds sold ............................. 762 42 5.46 708 39 5.57
Trading account assets ......................... 268 10 3.61 153 9 5.60
Investment securities:
U.S. Treasury and federal agencies ............ 5,337 313 5.88 5,980 360 6.03
State and political subdivisions .............. 1,729 105 6.08 1,645 105 6.37
Other investments ............................. 2,816 170 6.03 2,659 163 6.12
Loans(2):
Domestic ...................................... 4,549 271 5.97 3,905 243 6.22
Non-U.S. ...................................... 1,798 138 7.67 1,446 111 7.67
-------- ------- -------- -------
Total Interest-Earning Assets ................ 41,406 2,277 5.50 31,425 1,799 5.73
Cash and due from banks ........................ 926 1,119
Allowance for loan losses ...................... (90) (76)
Premises and equipment ......................... 633 475
Other assets ................................... 2,835 2,483
-------- --------
Total Assets ................................. $ 45,710 $ 35,426
======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits:
Savings ....................................... $ 2,495 $ 108 4.33 $ 2,081 $ 87 4.17
Time .......................................... 140 7 5.18 153 8 5.08
Non-U.S. ...................................... 16,294 542 3.33 12,645 417 3.30
Securities sold under repurchase agreements .... 13,775 703 5.11 9,598 499 5.20
Federal funds purchased ........................ 704 37 5.28 291 15 5.26
Other short-term borrowings .................... 619 29 4.66 602 30 5.03
Notes payable .................................. 4 6.40 76 3 4.34
Long-term debt ................................. 867 66 7.62 717 55 7.70
-------- ------- -------- -------
Total Interest-Bearing Liabilities ........... 34,898 1,492 4.28 26,163 1,114 4.26
------- -------
Noninterest-bearing deposits ................... 6,254 5,288
Other liabilities .............................. 2,401 2,128
Stockholders' equity ........................... 2,157 1,847
-------- --------
Total Liabilities and Stockholders'
Equity ...................................... $ 45,710 $ 35,426
======== ========
Net interest revenue ......................... $ 785 $ 685
======= =======
Excess of rate earned over rate paid ......... 1.22% 1.47%
==== ====
Net Interest Margin(3) ....................... 1.90% 2.18%
==== ====
1996
----------------------------------
Average Average
(Dollars in millions) Balance Interest Rate
- ------------------------------------------------ ------------ ---------- ----------
ASSETS
Interest-bearing deposits with banks(1) ........ $ 7,041 $ 336 4.78%
Securities purchased under resale agreements
and securities borrowed ....................... 6,010 326 5.43
Federal funds sold ............................. 561 30 5.35
Trading account assets ......................... 326 18 5.41
Investment securities:
U.S. Treasury and federal agencies ............ 4,319 261 6.03
State and political subdivisions .............. 1,478 92 6.25
Other investments ............................. 2,111 127 6.01
Loans(2):
Domestic ...................................... 3,353 212 6.32
Non-U.S. ...................................... 1,160 78 6.71
-------- -------
Total Interest-Earning Assets ................ 26,359 1,480 5.61
Cash and due from banks ........................ 1,164
Allowance for loan losses ...................... (70)
Premises and equipment ......................... 458
Other assets ................................... 1,572
--------
Total Assets ................................. $ 29,483
========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing deposits:
Savings ....................................... $ 2,097 $ 86 4.10
Time .......................................... 150 8 5.26
Non-U.S. ...................................... 10,372 331 3.19
Securities sold under repurchase agreements .... 7,819 394 5.05
Federal funds purchased ........................ 357 19 5.18
Other short-term borrowings .................... 707 36 5.04
Notes payable .................................. 124 3 2.47
Long-term debt ................................. 213 15 6.95
-------- -------
Total Interest-Bearing Liabilities ........... 21,839 892 4.08
-------
Noninterest-bearing deposits ................... 4,638
Other liabilities .............................. 1,388
Stockholders' equity ........................... 1,618
--------
Total Liabilities and Stockholders'
Equity ...................................... $ 29,483
========
Net interest revenue ......................... $ 588
=======
Excess of rate earned over rate paid ......... 1.53%
====
Net Interest Margin(3) ....................... 2.23%
====
================================================================================
(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.
Non-U.S. loans include non-U.S. lease financing.
(3) Net interest margin is taxable equivalent net interest revenue divided by
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.
8
Item 1. Business (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.
=============================================================================================================================
1998 Compared to 1997 1997 Compared to 1996
-------------------------------------- -------------------------------------
Change in Change in Net Increase Change in Change in Net Increase
(Dollars in millions) Volume Rate (Decrease) Volume Rate (Decrease)
- ------------------------------------------------ ----------- ----------- -------------- ----------- ----------- -------------
Interest revenue related to:
Interest-bearing deposits with banks ........... $132 $ (10) $ 122 $ 72 $ 7 $ 79
Securities purchased under resale agreements
and securities borrowed ....................... 347 (9) 337 22 6 28
Federal funds sold ............................. 3 (1) 3 8 1 9
Trading account assets ......................... 2 (1) 1 (10) 1 (9)
Investment securities:
U.S. Treasury and federal agencies ............ (38) (9) (47) 100 100
State and political subdivisions .............. 3 (3) 10 2 12
Other investments ............................. 9 (2) 7 34 2 36
Loans:
Domestic ...................................... 38 (12) 26 34 (3) 31
Non-U.S. ...................................... 26 3 29 21 12 33
---- ----- ----- ----- ----- -----
Total interest-earning assets ................ 522 (44) 478 291 28 319
---- ----- ----- ----- ----- -----
Interest expense related to:
Deposits:
Savings ....................................... 18 3 21 (1) 2 1
Time .......................................... (1) (1)
Non-U.S. ...................................... 121 4 125 75 11 86
Federal funds purchased ........................ 22 22 (3) (3)
Securities sold under repurchase agreements .... 213 (8) 205 92 12 104
Other short-term borrowings .................... 1 (2) (1) (6) (6)
Notes payable .................................. (6) 3 (3)
Long-term debt ................................. 11 (1) 10 38 2 40
---- ----- ----- ----- ----- -----
Total interest-bearing liabilities ........... 379 (1) 378 195 27 222
---- ----- ----- ----- ----- -----
Net Interest Revenue ......................... $143 $ (43) $ 100 $ 96 $ 1 $ 97
==== ===== ===== ===== ===== =====
==========================================================================================================================
Investment Portfolio
Investment securities consisted of the following at December 31:
===============================================================================================================
(Dollars in millions) 1998 1997 1996
- --------------------------------------------------------------------------- --------- --------- ---------
Held to Maturity (at amortized cost) -- U.S. Treasury and federal agencies $ 1,177 $ 893 $ 859
======= ======= =======
Available for Sale (at fair value):
U.S. Treasury and federal agencies ....................................... $ 3,695 $ 4,919 $ 4,643
State and political subdivisions ......................................... 1,612 1,657 1,559
Asset-backed securities .................................................. 1,719 1,673 1,200
Collateralized mortgage obligations ...................................... 726 571 631
Other investments ........................................................ 808 662 495
------- ------- -------
Total ................................................................... $ 8,560 $ 9,482 $ 8,528
======= ======= =======
==============================================================================================================
9
Item 1. Business (continued)
The maturities of debt investment securities at December 31, 1998 and the
weighted average yields (fully taxable equivalent basis) were as follows:
================================================================================
Years
-------------------------------------------
Under 1 1 to 5
--------------------- ---------------------
(Dollars in millions) Amount Yield Amount Yield
- ---------------------------------------------- ---------- ---------- ---------- ----------
Held to Maturity (at amortized cost) --
U.S. Treasury and federal agencies .......... $ 924 5.45% $ 253 5.51%
======= =======
Available for Sale (at fair value):
U.S. Treasury and federal agencies .......... $ 2,446 5.69 $ 1,226 5.34
State and political subdivisions ............ 408 5.90 808 5.82
Asset-backed securities ..................... 1,057 6.05 657 6.05
Collateralized mortgage obligations ......... 506 6.38 213 6.38
Other investments ........................... 207 5.04 565 5.06
------- -------
Total ...................................... $ 4,624 $ 3,469
======= =======
Years
---------------------------------------
5 to 10 Over 10
------------------- -------------------
(Dollars in millions) Amount Yield Amount Yield
- ---------------------------------------------- -------- ---------- -------- ----------
Held to Maturity (at amortized cost) --
U.S. Treasury and federal agencies ..........
Available for Sale (at fair value):
U.S. Treasury and federal agencies .......... $ 23 6.22% $
State and political subdivisions ............ 111 6.01 285 5.94%
Asset-backed securities ..................... 3 6.05 2 6.05
Collateralized mortgage obligations ......... 4 6.38 3 6.38
Other investments ........................... ----- -----
Total ...................................... $ 141 $ 290
===== =====
======================================================================================
Loan Portfolio
Domestic and non-U.S. loans at December 31 and average loans outstanding for the
years ended December 31, were as follows:
=============================================================================================================
(Dollars in millions) 1998 1997 1996 1995 1994
- ------------------------------------------------- --------- --------- --------- --------- ---------
Domestic:
Commercial and financial ....................... $ 4,306 $ 3,623 $ 3,022 $ 2,620 $ 2,111
Lease financing ................................ 415 296 304 315 342
Real estate .................................... 90 74 118 96 101
------- ------- ------- ------- -------
Total domestic ................................ 4,811 3,993 3,444 3,031 2,554
------- ------- ------- ------- -------
Non-U.S.:
Commercial and industrial ...................... 505 829 764 634 511
Lease financing ................................ 917 669 415 256 110
Banks and other financial institutions ......... 60 59 78 57 52
Other .......................................... 16 12 12 8 6
------- ------- ------- ------- -------
Total non-U.S. ................................ 1,498 1,569 1,269 955 679
------- ------- ------- ------- -------
Total loans ................................... $ 6,309 $ 5,562 $ 4,713 $ 3,986 $ 3,233
======= ======= ======= ======= =======
Average loans outstanding ....................... $ 6,347 $ 5,351 $ 4,513 $ 3,664 $ 3,401
======= ======= ======= ======= =======
================================================================================
Loan maturities for selected loan categories at December 31, 1998 were as
follows:
================================================================================
Years
----------------------------
(Dollars in millions) Under 1 1 to 5 Over 5
- ------------------------------------ --------- ---------- -------
Domestic
Commercial and financial ......... $ 2,556 $ 1,156 $ 594
Real estate ...................... 32 39 19
Non-U.S. ........................... 549 15 934
================================================================================
10
Item 1. Business (continued)
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 .................. $ 954
Loans with floating or adjustable interest rates ......... 1,803
-------
Total ................................................... $ 2,757
=======
================================================================================
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 $1 million for each of the years ended
December 31, 1998 and 1997.
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
non-accrual 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.
Non-accrual loans totaled $12 million, $2 million, $12 million, $16 million and
$23 million as of December 31, 1998 through 1994, respectively. There were no
non-accrual loans to non-U.S. customers in 1998, less than $1 million in 1997,
$6 million in 1996, and there were none in 1995 and 1994.
Past due loans totaled less than $1 million as of December 31, 1998 through
1994. Past due loans included loans to non-U.S. customers for less than $1
million in 1998 and 1997, and none for the years 1996 through 1994.
The interest revenue for 1998 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 less than $1 million,
all of which relates to domestic loans.
11
Item 1. Business (continued)
Allowance for Loan Losses and Credit Quality
The changes in the allowance for loan losses for the years ended December 31,
were as follows:
===============================================================================================================================
(Dollars in millions) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------- --------- --------- ------------ --------- ---------
Balance at beginning of year:
Domestic ................................................................ $ 68 $ 63 $ 54 $ 53 $ 51
Non-U.S. ................................................................ 15 10 9 5 3
------ ------ ------ ------ ------
Total allowance for loan losses ........................................ 83 73 63 58 54
------ ------ ------ ------ ------
Provision for loan losses:
Domestic ................................................................ 13 6 7 4 9
Non-U.S. ................................................................ 4 10 1 4 2
------ ------ ------ ------ ------
Total provision for loan losses ........................................ 17 16 8 8 11
------ ------ ------ ------ ------
Loan charge-offs:
Commercial and financial ................................................ 19 1 4 5 10
Real estate ............................................................. 1 1
Non-U.S. ................................................................ 6 1 1
------ ------ ------ ------ ------
Total loan charge-offs ................................................. 19 8 5 7 10
------ ------ ------ ------ ------
Recoveries:
Commercial and financial ................................................ 2 1 3 2 3
Real estate ............................................................. 1 3 1
Non-U.S. ................................................................ 1 1 1
------ ------ ------ ------ ------
Total recoveries ....................................................... 3 2 7 4 3
------ ------ ------ ------ ------
Net loan charge-offs (recoveries) ...................................... 16 6 (2) 3 7
------ ------ --------- ------ ------
Balance at end of year:
Domestic ................................................................ 65 68 63 54 53
Non-U.S. ................................................................ 19 15 10 9 5
------ ------ -------- ------ ------
Total allowance for loan losses ........................................ $ 84 $ 83 $ 73 $ 63 $ 58
====== ====== ======== ====== ======
Ratio of net charge-offs (recoveries) to average loans outstanding ....... .24% .11% (.02)% .07% .23%
====== ====== ======== ====== ======
===============================================================================================================================
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 previous loss
experience, current economic conditions and adverse situations that may affect
the borrowers' ability to repay, timing of future payments, estimated value of
the underlying collateral and the performance of individual credits in relation
to contract terms, and other relevant factors.
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 general reserve is based
upon such factors as portfolio concentration, historical losses and current
economic conditions.
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 $17 million and $16 million in 1998 and 1997, respectively.
At December 31, 1998, loans comprised 13% of State Street's assets. State
Street's loan policies limit the size of individual loan exposures to reduce
risk through diversification.
12
Item 1. Business (continued)
For 1998, net charge-offs were $16 million versus net charge-offs of $6 million
in 1997. Net charge-offs for 1998, as a percentage of average loans, were .24%
compared to net charge-offs of .11% for 1997.
At December 31, 1998, total non-performing assets were $16 million, a $10
million increase from year-end 1997. Non-performing assets include $12 million
and $2 million of non-accrual loans at year-end 1998 and 1997, respectively, and
$4 million of other real estate owned for both 1998 and 1997.
At December 31, 1998, the allowance for loan losses was $84 million, or 1.34% of
total loans. This compares with an allowance of $83 million, or 1.49% of total
loans a year ago. In 1998, the measures of credit quality continued to be
satisfactory, largely due to favorable U.S. economic conditions. State Street
expects these measures of credit quality to continue to remain satisfactory in
1999. 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 within 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:
================================================================================
(Dollars in millions) 1998 1997 1996
- ----------------------------- --------- ----------- ---------
Japan ....................... $ 2,790 $ 1,826 $ 1,419
Germany ..................... 1,610 1,482 1,051
Canada ...................... 1,053 1,127 675
United Kingdom .............. 897 1,793 806
Netherlands ................. 874 1,053 622
France ...................... 874 715 883
Australia ................... 812 796 741
Italy ....................... 666 605 628
Belgium ..................... 618 350
------- -------- -------
Total outstandings ......... $ 9,576 $ 10,015 $ 7,175
======= ======== =======
================================================================================
Aggregate of cross-border outstandings in countries having between .75% and 1%
of total assets at December 31, 1998 was $441 million (Belgium); at December 31,
1997 was $729 million ($369 million for Switzerland and $360 million for
Sweden); and at December 31, 1996 was $276 million (Switzerland).
Deposits
The average balance and rates paid on interest-bearing deposits for the years
ended December 31, were as follows:
================================================================================
1998 1997 1996
----------------------- ----------------------- ------------------------
Average Average Average Average Average Average
(Dollars in millions) Balance Rate Balance Rate Balance Rate
- --------------------------------------- ----------- --------- ----------- --------- ----------- ----------
Domestic:
Noninterest-bearing deposits ......... $ 6,159 $ 5,191 $ 4,586
Savings deposits ..................... 2,495 4.33% 2,081 4.17% 2,097 4.10%
Time deposits ........................ 140 5.18 153 5.08 150 5.26
-------- -------- --------
Total domestic ...................... $ 8,794 $ 7,425 $ 6,833
======== ======== ========
Non-U.S.:
Noninterest-bearing deposits ......... $ 95 $ 97 $ 52
Interest bearing ..................... 16,294 3.33 12,645 3.30 10,372 3.19
-------- -------- --------
Total non-U.S. ...................... $ 16,389 $ 12,742 $ 10,424
======== ======== ========
================================================================================
13
Item 1. Business (continued)
Maturities of domestic certificates of deposit of $100,000 or more at December
31, 1998 were as follows:
================================================================================
(Dollars in millions)
- --------------------------
3 months or less ......... $ 42
3 to 6 months ............ 3
6 to 12 months ........... 6
Over 12 months ........... 1
----
Total ................... $ 52
====
================================================================================
At December 31, 1998, substantially all non-U.S. time deposit liabilities were
in amounts of $100,000 or more. Included in noninterest-bearing deposits were
non-U.S. deposits of $83 million at December 31, 1998, $72 million at December
31, 1997 and $28 million at December 31, 1996.
Return on Equity and Assets and Capital Ratios
The return on equity, return on assets, dividend pay-out ratio, equity to assets
ratio and capital ratios for the years ended December 31, were as follows:
================================================================================
1998 1997 1996
---------- ---------- ----------
Net income to:
Average stockholders' equity .......................... 20.2% 20.6% 18.1%
Average total assets .................................. .95 1.07 .99
Dividends declared to net income ....................... 19.6 18.2 20.9
Average stockholders' equity to average assets ......... 4.7 5.2 5.5
Risk-based capital ratios:
Tier 1 capital ........................................ 14.1 13.7 13.4
Total capital ......................................... 14.4 13.8 13.6
Leverage ratio ......................................... 5.4 5.9 5.9
================================================================================
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 December 31:
================================================================================
Federal Funds Purchased
-----------------------------------
(Dollars in millions) 1998 1997 1996
- -------------------------------------------------------- ------------ ---------- -----------
Balance at December 31 ................................. $ 914 $ 189 $ 117
Maximum outstanding at any month end ................... 2,241 402 454
Average outstanding during the year .................... 704 291 357
Weighted average interest rate at end of year .......... 4.78% 5.69% 5.05%
Weighted average interest rate during the year ......... 5.28 5.26 5.18
============================================================================================
============================================================================================
Securities Sold Under
Repurchase Agreement
----------------------------------------
(Dollars in millions) 1998 1997 1996
- -------------------------------------------------------- ------------- ------------ -------------
Balance at December 31 ................................. $ 12,563 $ 7,409 $ 7,387
Maximum outstanding at any month end ................... 17,643 10,106 10,013
Average outstanding during the year .................... 13,775 9,598 7,819
Weighted average interest rate at end of year .......... 4.59% 5.20% 5.20%
Weighted average interest rate during the year ......... 5.11 5.20 5.05
=================================================================================================
14
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 city south
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, which serves as a data center, and
is completing construction on a 100,000 square foot data center in Kansas City,
Missouri.
The remaining offices and facilities of State Street and its subsidiaries are
leased. As of December 31, 1998, the aggregate mortgages and lease payments, net
of sublease revenue, payable within one year amounted to $93 million plus
assessments for real estate tax, cleaning and operating escalation.
For additional information relating to premises, see Note E to the 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
15
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 ........... 58 Chairman and Chief Executive Officer
David A. Spina ............... 56 President and Chief Operating Officer
Dale L. Carleton ............. 54 Vice Chairman
Nicholas A. Lopardo .......... 52 Vice Chairman
Maureen Scannell Bateman ..... 55 Executive Vice President and General Counsel
Susan Comeau ................. 57 Executive Vice President
John A. Fiore ................ 47 Executive Vice President and Chief Information Officer
Ronald E. Logue .............. 53 Executive Vice President
Ronald L. O'Kelley ........... 53 Executive Vice President, Chief Financial Officer and Treasurer
Albert E. Petersen ........... 53 Executive Vice President
William M. Reghitto .......... 56 Executive Vice President
John R. Towers ............... 57 Executive Vice President
================================================================================
All executive officers are elected by the Board of Directors. The Chairman,
President and Treasurer have been elected to hold office until the next annual
meeting of stockholders and until their respective successors are chosen and
qualified. Other executive officers hold office at the pleasure of the Board.
There are no family relationships among any of the directors and executive
officers of State Street. With the exception of Ms. Bateman and Messrs. O'Kelley
and Towers, all of the executive officers have been officers of State Street for
five years or more.
Ms. Bateman became an officer of State Street in 1997. Prior to joining State
Street, she was Managing Director and General Counsel at United States Trust
Company of New York. Prior to that, she had been Vice President and Counsel at
Bankers Trust Company.
Mr. O'Kelley became an officer of State Street in 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 BankBoston. Prior to that, he was Senior Vice President and
Division Head of Mutual Funds at United States Trust Company of New York.
Mr. Fiore became an executive officer of State Street in 1998. He previously
served as Chief Information Officer of State Street Global Advisors since
joining State Street in 1992.
16
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 27 of State Street's 1998
Annual Report to Stockholders and is incorporated by reference. There were 6,457
stockholders of record at December 31, 1998. State Street's common stock is
listed 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 May 28, 1997, State Street distributed a two-for-one stock split in the form
of a 100% stock dividend to shareholders.
Directors who are also employees of the Corporation or the Bank receive no
compensation for serving as directors or as members of committees. Directors who
are not employees of the Corporation or the Bank received an annual retainer of
$35,000, payable at their election in shares of Common Stock of the Corporation
or in cash, and an award of 251 shares of deferred stock payable when the
director leaves the Board or retires, for the period April 1998 through March
1999. In 1998, all outside directors elected to receive their annual retainer in
shares of Common Stock. On July 1, 1998, two of the Directors, who joined the
Board in September 1997, each received a prorated award of 137 deferred shares
for the 1997-1998 period. An aggregate of 7,648 shares were issued as retainers,
and rights to receive an aggregate of 4,290 deferred shares were awarded, in
1998. Exemption from registration of the shares is claimed by the Corporation
under Section 4(2) of the Securities Act of 1933.
Under a plan effective January 1, 1995, non-employee directors with at least
five years of service were eligible for an annual retirement benefit equal to
their annual retainer at retirement, payable for a period equal to the length of
service of the director on the Board, up to a maximum of ten years. On March 19,
1998, the Directors' Retirement Plan was terminated, and Directors with five or
more years of service with the Corporation were allowed to maintain their
accrued benefits pursuant to the Plan or to transfer the value of the accrued
benefits into a deferred stock account. Directors with less than five years of
service had their benefits automatically transferred into a deferred stock
account. One of the Directors elected to maintain his accrued benefits pursuant
to the Plan. Rights to receive an aggregate of 23,527 deferred shares were
awarded for this transfer. Future accruals under the Directors' Retirement Plan
have been replaced with annual deferred stock awards equal, in each case, to the
number of shares of the Common Stock of the Corporation determined by dividing
$7,000 by the current share price. Rights to receive an aggregate of 1,612
deferred shares were awarded for the period April 1998 through March 1999.
Exemption from registration of the shares is claimed by the Corporation under
Section 4(2) of the Securities Act of 1933.
Item 6. Selected Financial Data
The information required by this item is set forth on page 13 of State Street's
1998 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 1998 Annual
Report to Stockholders on pages 5 through 11 and pages 14 through 29 and is
incorporated by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item appears in State Street's 1998 Annual
Report to Stockholders on pages 27 through 29 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 30 through 51 of State Street's 1998
Annual Report to Stockholders and are incorporated by reference. In addition,
discussion of restrictions on transfer of funds from State Street Bank to State
Street is included in Part I, Item 1, "Dividends".
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
17
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning State Street's directors appears on pages 1 through 7 of
State Street's Proxy Statement for the 1999 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 1999 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 in response to this item appears on pages 15 to 17 in State Street's
Proxy Statement for the 1999 Annual Meeting of Stockholders under the caption
"Executive Compensation", on page 7 in State Street's Proxy Statement for the
1999 Annual Meeting of Stockholders under the caption "Compensation of
Directors", on pages 19 to 21 in State Street's Proxy Statement for the 1999
Annual Meeting of Stockholders under the caption "Retirement Benefits", on page
9 in State Street's Proxy Statement for the 1999 Annual Meeting of Stockholders
under the caption "Compensation Committee Interlocks and Insider Participation",
on pages 10 to 14 in State Street's Proxy Statement for the 1999 Annual Meeting
of Stockholders under the caption "Report of the Executive Compensation
Committee", and on page 18 in State Street's Proxy Statement for the 1999 Annual
Meeting of Stockholders under the caption "Stockholder Return Performance
Presentation". 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 page 8 in State Street's Proxy Statement for the 1999
Annual Meeting of Stockholders under the caption "Beneficial Ownership of
Shares." Such information is incorporated by reference.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions appears on
page 9 in State Street's Proxy Statement for the 1999 Annual Meeting of
Stockholders under the caption "Certain Transactions". Such information is
incorporated by reference.
18
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements
The following consolidated financial statements of State Street included
in its Annual Report to Stockholders for the year ended December 31, 1998
are incorporated by reference in Item 8 hereof:
Consolidated Statement of Income - Years ended December 31, 1998, 1997
and 1996
Consolidated Statement of Condition - December 31, 1998 and 1997
Consolidated Statement of Cash Flows - Years ended December 31, 1998,
1997 and 1996
Consolidated Statement of Changes in Stockholders' Equity - Years ended
December 31, 1998, 1997 and 1996
Notes to Financial Statements
Report of Independent Auditors
(2) Financial Statement Schedules
Certain schedules to the consolidated financial statements have been
omitted if they were not required by Article 9 of Regulation S-X or if,
under the related instructions, they were inapplicable, or the
information was contained elsewhere herein.
(3) Exhibits
A list of the exhibits filed or incorporated by reference is as follows:
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, 1997 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)
4.1 The description of Registrant Common Stock is included in
Registrant's Registration Statement on Form 10, as filed with the
Securities and Exchange Commission on September 3, 1970 and amended
as filed with the Securities and Exchange Commission on May 12, 1971
and incorporated by reference
4.2 Amended and Restated Rights Agreement dated as of June 18, 1998
between Registrant and BankBoston, N.A., Rights Agent (filed with the
Securities and Exchange Commission as Exhibit 99.1 to Registrant's
Current Report on Form 8-K dated June18, 1998 and incorporated by
reference)
4.3 Indenture dated as of May 1, 1983 between Registrant and Morgan
Guaranty Trust Company of New York, Trustee, relating to Registrant's
7-3/4% Convertible Subordinated Debentures due 2008 (filed with the
Securities and Exchange Commission as Exhibit 4 to Registrant's
Registration Statement on Form S-3 (Commission File No.
2-83251) and incorporated by reference)
4.4 Indenture dated as of August 2, 1993 between Registrant and The First
National Bank of Boston, as trustee relating to Registrant's
long-term notes (filed 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)
4.5 Instrument of Resignation, Appointment, and Acceptance, dated as of
February 14, 1996 among Registrant, The First National Bank of Boston
(resigning trustee) and Fleet National Bank of Massachusetts
(successor trustee) (filed 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)
4.6 Instrument of Resignation, Appointment and Acceptance dated as of
June 26, 1997 among Registrant, Fleet National Bank (resigning
trustee) and First Trust National Association (successor trustee)
(filed with the Securities and Exchange Commission as Exhibit 4.13 to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1997 and incorporated by reference)
4.7 Junior Subordinated Indenture dated as of December 15, 1996 between
Registrant 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 December 20, 1996 and incorporated
by reference)
4.8 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 December 20, 1996 and incorporated
by reference)
4.9 Capital Securities Guarantee Agreement dated as of December 15,1996
between Registrant 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 December 20, 1996 and incorporated
by reference)
19
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)
4.10 Amended and Restated Trust Agreement, dated as of March 11,1997
relating to State Street Institutional Capital B (filed with the
Securities and Exchange Commission as Exhibit 2 to the Registrant's
Current Report on Form 8-K dated March 11, 1997 and incorporated by
reference)
4.11 Capital Securities Guarantee Agreement dated as of March 11,1997
between Registrant 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 March 11,1997 and incorporated by
reference)
4.12 (Note: Registrant agrees to furnish to the Securities and Exchange
Commission upon request a copy of any other instrument with respect
to long-term debt of the Registrant and its subsidiaries. Such other
instruments are not filed herewith since no such instrument relates
to outstanding debt in an amount greater than 10% of the total assets
of Registrant and its subsidiaries on a consolidated basis.)
10.1 Registrant's 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 Registrant's 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 Registrant's 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 Registrant's 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 Registrant's 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 Registrant's
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)
10.6A 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)
10.7 Registrant's 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)
10.7A Amendment No. 1 dated as of October 19, 1995, to Registrant's 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)
10.7B Amendment No. 2 dated as of June 20, 1996, to Registrant's 1994 Stock
Option and Performance Unit Plan (filed with the Securities and
Exchange Commission as Exhibit 10 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996 and incorporated by
reference)
10.8 Registrant's Amended and Restated Supplemental Defined Benefit
Pension Plan for Senior Executive Officers (filed with the Securities
and Exchange Commission as Exhibit 10 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998 and
incorporated by reference)
10.9 Registrant's Non-employee 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)
10.10 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)
10.11 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)
10.12 State Street Global Advisors Equity Compensation Plan (filed with the
Securities and Exchange Commission as Exhibit 10 to the Registrant's
Form 10-Q for the quarter ended September 30, 1996 and incorporated
by reference)
20
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)
10.13 Registrant's Senior Executive Annual Incentive 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, 1996 and
incorporated by reference)
10.14 Registrant's Executive Compensation Trust Agreement dated December 6,
1996 (Rabbi Trust) (filed with the Securities and Exchange Commission
as Exhibit 10.18 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated by reference).
10.15 Registrant's 1997 Equity Incentive Plan, as amended (filed with the
Securities and Exchange Commission as Exhibit 10.22 to Registrant's
Form 10-Q for the quarter ended June 30, 1997 and incorporated by
reference)
10.15A Amendment No. 2 to Registrant's 1997 Equity Incentive 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, 1997 and incorporated by reference)
10.16 Description of 1998 deferred stock awards and issuances in lieu of
retainer to non-employee directors
12.1 Statement of ratio of earnings to Fixed charges
13 Portions of State Street Corporation's Annual Report to Stockholders
for the year ended December 31, 1998. With the exception of the
information incorporated by reference in Items 1, 2, 5, 6, 7, 7A, 8
and 14 of this Form 10-K, the Annual Report to Stockholders is not
deemed filed as part of this report
21.1 Subsidiaries of State Street Corporation
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule for the year ended December 31, 1998 (such
schedule is not deemed filed as part of this report)
(b) Reports on Form 8-K
None
21
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, on March 18, 1999, thereunto duly authorized.
STATE STREET CORPORATION
By /s/ Rex S. Schuette
----------------------------
REX S. SCHUETTE
Senior Vice President and
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 18, 1999 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, RONALD L. O'KELLEY,
Chairman and Chief Executive Executive Vice
Officer President, Chief
Financial Officer and
Treasurer
/s/ Rex S. Schuette
------------------------
REX S. SCHUETTE,
Senior Vice President
and Chief Accounting
Officer
DIRECTORS:
/s/ Tenley E. Albright, M.D. /s/ I. Macallister Booth
------------------------ ------------------------
TENLEY E. ALBRIGHT, M.D. I. MACALLISTER BOOTH
------------------------ ------------------------
JAMES I. CASH, JR. TRUMAN S. CASNER
/s/ Arthur L. Goldstein
------------------------ ------------------------
NADER F. DAREHSHORI ARTHUR L. GOLDSTEIN
/s/ David P. Gruber
------------------------ ------------------------
DAVID P. GRUBER 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/ Diana Chapman Walsh
------------------------ ------------------------
DAVID A. SPINA DIANA CHAPMAN WALSH
/s/ Robert E. Weissman
------------------------
ROBERT E. WEISSMAN
22
EXHIBIT INDEX
(filed herewith)
10.16 Description of 1998 deferred stock awards and issuances in lieu of
retainer to non-employee directors
12.1 Statement of ratio of earnings to fixed charges
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, 1998
(not covered by the Report of Independent Public Accountants)
13.3 Letter to Stockholders
13.4 State Street Corporation Consolidated Financial Statements and
Schedules
21.1 Subsidiaries of State Street Corporation
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule for the year ended December 31, 1998 (such
schedule is not to be deemed filed as part of this report.)
23