-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A5kpn8UinXPyJegUDEas9TwH8hUMSuf+wyq8W63XOESKtEwkS8BHqEM7ueJFP3Pj k0zGEoQ3deVrnrljc/qlyw== 0000950156-96-000321.txt : 19960328 0000950156-96-000321.hdr.sgml : 19960328 ACCESSION NUMBER: 0000950156-96-000321 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960327 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STATE STREET BOSTON CORP CENTRAL INDEX KEY: 0000093751 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 042456637 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07511 FILM NUMBER: 96539170 BUSINESS ADDRESS: STREET 1: 225 FRANKLIN ST CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6177863000 MAIL ADDRESS: STREET 1: 225 FRANKLIN STREET CITY: BOSTON STATE: MA ZIP: 02110 FORMER COMPANY: FORMER CONFORMED NAME: STATE STREET BOSTON FINANCIAL CORP DATE OF NAME CHANGE: 19780525 10-K 1 STATE STREET BOSTON CORP. FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NO. 0-5108 STATE STREET BOSTON CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MASSACHUSETTS 04-2456637 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION) IDENTIFICATION NO.) 225 FRANKLIN STREET BOSTON, MASSACHUSETTS 02110 (ADDRESS OF PRINCIPAL (ZIP CODE) EXECUTIVE OFFICE) 617-786-3000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ---------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: (TITLE OF CLASS) (NAME OF EXCHANGE ON WHICH REGISTERED) ---------------- -------------------------------------- COMMON STOCK, $1 PAR VALUE BOSTON STOCK EXCHANGE, NEW YORK STOCK EXCHANGE AND PACIFIC STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE ---------------- INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ] INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S COMMON STOCK HELD BY NON- AFFILIATES (PERSONS OTHER THAN DIRECTORS AND EXECUTIVE OFFICERS) OF THE REGISTRANT ON FEBRUARY 29, 1996 WAS $3,658,343,000. THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING ON FEBRUARY 29, 1996 WAS 81,275,387. PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED INTO THE PARTS OF THIS REPORT ON FORM 10-K INDICATED BELOW: (1) ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1995 (PARTS I AND II) AND (2) THE REGISTRANT'S DEFINITIVE PROXY STATEMENT DATED MARCH 12, 1996 (PART III) ================================================================================ PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS State Street Boston Corporation ("State Street") is a bank holding company organized under the laws of the Commonwealth of Massachusetts. State Street was organized in 1970 and conducts its business principally through its subsidiary, State Street Bank and Trust Company ("State Street Bank"), which traces its beginnings to the founding of the Union Bank in 1792. The charter under which State Street Bank now operates was authorized by a special act of the Massachusetts Legislature in 1891, and its present name was adopted in 1960. State Street is the fifth largest provider of trust services in the United States as ranked on the basis of 1994 fiduciary compensation. State Street had $2.3 trillion of assets under custody, $283 billion of bonds under trusteeship, and $226 billion of assets under management at year-end 1995. Ranked on the basis of total assets as of September 1995, State Street is the 33rd largest bank holding company in the United States. State Street's total assets were $25.8 billion at December 31, 1995, of which $18.6 billion, or 72%, were investment securities and money market assets and $3.9 billion, or 15%, were loans. Services are provided from offices in the United States, as well as from offices in Canada, Grand Cayman, Netherland Antilles, the United Kingdom, France, Belgium, Luxembourg, Denmark, Germany, United Arab Emirates, Hong Kong, Taiwan, Japan, Australia, and New Zealand. State Street's executive offices are located at 225 Franklin Street, Boston, Massachusetts. For information as to foreign activities, refer to Note T to the Notes to Financial Statements which appear in State Street's 1995 Annual Report to Stockholders. Such information is incorporated by reference. LINES OF BUSINESS State Street has three lines of business: financial asset services, investment management and commercial lending. In 1995, 65% of net income came from the broad and growing array of financial asset services, 24% came from commercial lending and 16% came from investment management. Corporate items reduced net income by 5%. The results of operations for State Street's lines of business are set forth in tabular form and discussed on pages 30 and 31 of State Street's 1995 Annual Report to Stockholders in management's discussion and analysis of financial condition and results of operation. Such information is incorporated by reference. FINANCIAL ASSET SERVICES Financial asset services are primarily accounting, custody and other services for large pools of assets such as mutual funds and pension plans, both defined benefit and defined contribution, and corporate trusteeship. A broad array of other services is provided, including accounting, information services and recordkeeping. Also provided are banking functions of accepting deposits, managing global cash, making loans and trading foreign exchange. With $1 trillion of mutual fund assets under custody, State Street is the leading mutual fund custodian in the United States, servicing 41% of the registered funds. State Street began providing mutual fund services in 1924 and servicing pension assets in 1974. Customers who sponsor the 2,842 U.S. mutual funds that State Street services include investment companies, broker/dealers, insurance companies and others. In addition, State Street services 242 offshore mutual funds and collective investment funds in other countries. State Street offers a full array of mutual fund services, including custody, portfolio and general ledger accounting, pricing, fund administration and information services. Shareholder accounting is provided through a 50%-owned affiliate. Servicing $927 billion of pension and other assets for North American customers, State Street is ranked as the largest servicer of tax-exempt assets for corporations and public funds in the United States and the largest global custodian for U.S. pension assets. Services include portfolio accounting, securities custody, securities lending, and other related services for retirement and other financial assets of benefit pension plans, unions, endowments, foundations, and nuclear decommissioning trusts. In addition, State Street provides global and domestic custody-related services for $115 billion in assets for customers outside North America. State Street acts as participant recordkeeper, securities custodian and trustee for defined contribution plans, such as 401(k) plans and ESOPs, and issues checks for employee benefit distributions. Corporate trust services for asset-backed securities, corporate securities, leveraged leases, and municipal securities are provided to investment banks, corporations, municipalities and government agencies from four offices in the United States. At year end 1995, bonds under trusteeship totaled $283 billion. State Street provides foreign exchange trading and global cash management services to financial institutions and corporations. Funds are gathered in the form of domestic and foreign deposits, federal funds purchased and securities sold under repurchase agreements from local, national and international sources. Trading and arbitrage operations are conducted with government securities, futures and options. Municipal dealer activities include underwriting, trading and distribution of general obligation tax-exempt bonds and notes. Treasury centers are located in Boston, London, Hong Kong, Tokyo, Sydney, Munich and Luxembourg. State Street also provides corporate finance services, including private placement of debt and equity, acquisitions and divestitures, and project finance. INVESTMENT MANAGEMENT State Street was a pioneer in the development of domestic and international index funds through State Street Global Advisors ("SSgA"). The products now offered by SSgA include enhanced index and fully-active equity strategies, short-term investment funds and fixed income products. These products are sold and managed both domestically and from locations outside the United States. State Street is ranked as the largest manager of internationally-indexed assets and the second largest manager of tax-exempt money in the United States. State Street is a leading New England trustee and money manager for individuals, and provides planned gift management services for non-profit organizations throughout the United States. At year-end 1995, institutional and personal trust assets under management totaled $226 billion. COMMERCIAL LENDING State Street provides corporate banking, specialized lending and international banking to business and financial institutions. One-third of the loan portfolio supports the short-term needs of financial asset services customers and securities brokers in conjunction with their trading and settlement activity. Corporate banking services are offered primarily to middle market companies in the Northeast as well as small businesses in the local community. Specialized lending is both regional and national, with specialities that include cable television, security alarm monitoring, technology-based companies, publishing, law firms, non-profit institutions, broker/dealers and other financial institutions. In addition, State Street engages in asset-based finance, leasing, real estate, and trade finance transactions. Trade finance includes letters of credit, collection, payment and other specialized services for importers and exporters. SELECTED STATISTICAL INFORMATION The following tables contain State Street's consolidated statistical information relating to, and should be read in conjunction with, the consolidated financial statements, selected financial data and management's discussion and analysis of financial condition and results of operation, all of which appear in State Street's 1995 Annual Report to Stockholders and is incorporated by reference herein. Information reported in State Street's 1994 Form 10-K was restated for the acquisition of Investors Fiduciary Trust Company which was accounted for as a pooling of interests. This restated information was filed with the SEC on Form 8-K, dated May 19, 1995. DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL The average statements of condition and net interest revenue analysis for the years indicated are presented below.
1995 1994 1993 ------------------------------ ------------------------------ ------------------------------- AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE ------- -------- ------- ------- -------- ------ ------- -------- ---- (DOLLARS IN THOUSANDS) ASSETS Interest-bearing deposits with banks(1) ............ $ 5,465,950 $286,749 5.25% $ 5,182,776 $209,355 4.04% $ 5,022,194 $201,400 4.01% Securities purchased under resale agreements and securities borrowed ............ 5,568,532 329,128 5.91 3,101,649 132,112 4.26 3,255,014 102,332 3.14 Federal funds sold .... 474,730 28,350 5.97 537,433 23,889 4.45 533,644 16,181 3.03 Trading account assets 412,413 21,137 5.13 532,108 26,095 4.90 415,525 16,693 4.02 Investment securities: U.S. Treasury and Federal agencies .. 4,139,383 243,936 5.89 3,454,886 184,251 5.33 2,181,353 124,699 5.72 State and political subdivisions ...... 1,183,372 70,562 5.96 1,119,909 56,956 5.09 731,943 39,780 5.43 Other investments ... 2,211,650 133,712 6.05 2,596,978 138,942 5.35 2,168,790 117,843 5.43 Loans(2): Domestic ............ 2,925,345 201,168 6.88 2,728,849 145,609 5.34 2,261,915 113,272 5.01 Foreign ............. 738,368 56,767 7.69 672,509 44,091 6.56 314,122 19,137 6.09 ------------ --------- ------------ --------- ------------ --------- Total interest- earning assets .... 23,119,743 1,371,509 5.93 19,927,097 961,300 4.82 16,884,500 751,337 4.45 --------- --------- --------- Cash and due from banks ................ 1,025,646 1,285,560 979,258 Allowance for loan losses ............... (61,749) (58,089) (57,522) Premises and equipment 481,000 462,005 435,475 Customers' acceptance liability(3) ........ 63,252 29,580 33,363 Other assets .......... 1,554,066 1,148,959 651,863 ------------ ------------ ------------ Total Assets ........ $26,181,958 $22,795,112 $18,926,937 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits: Savings ............. $ 1,912,798 85,160 4.45 $ 1,991,910 56,673 2.85 $ 2,253,434 55,199 2.45 Time ................ 131,008 7,170 5.47 172,411 7,790 4.52 234,250 12,281 5.24 Foreign ............. 8,470,367 323,717 3.82 7,391,851 216,227 2.93 4,953,696 146,051 2.95 Federal funds purchased ............ 504,079 29,695 5.89 410,784 16,019 3.90 741,082 21,023 2.84 Securities sold under repurchase agreements .......... 7,080,311 400,224 5.65 4,957,940 201,992 4.07 4,180,945 121,403 2.90 Other short-term borrowings ........... 760,586 40,453 5.32 563,221 24,787 4.40 215,948 8,156 3.78 Notes payable ......... 213,802 12,241 5.73 258,252 11,979 4.64 510,719 19,943 3.90 Long-term debt ........ 127,036 8,525 6.71 128,130 8,625 6.73 122,403 10,023 8.19 ------------ --------- ------------ --------- ------------ --------- Total interest- bearing liabilities ....... 19,199,987 907,185 4.72 15,874,499 544,092 3.43 13,212,477 394,079 2.98 --------- ----- --------- ----- --------- ----- Noninterest-bearing deposits ............ 4,113,458 4,700,888 4,059,011 Acceptances outstanding (3) ................. 63,570 30,098 33,956 Other liabilities ..... 1,322,130 905,514 496,938 Stockholders' equity .. 1,482,813 1,284,113 1,124,555 ------------ ------------ ------------ Total Liabilities and Stockholders' Equity ............ $26,181,958 $22,795,112 $18,926,937 ============ ============ ============ Net interest revenue $464,324 $417,208 $357,258 ======== ======== ======== Excess of rate earned over rate paid .... 1.21% 1.39% 1.47% ===== ==== ==== Net Interest Margin(4) 2.01% 2.09% 2.12% ===== ==== ====
- ---------- (1) Amounts reported were with non-U.S. domiciled offices of other banks. (2) Non-accrual loans are included in the average loan amounts outstanding. (3) In 1995, 1994 and 1993, 22%, 43% and 13% of acceptances were foreign. (4) Net interest margin is taxable equivalent net interest revenue divided by total average interest-earning assets. Interest revenue on non-taxable investment securities and loans in the above table includes the effect of taxable-equivalent adjustments, using a Federal income tax rate of 35%, adjusted for applicable state income taxes net of the related Federal tax benefit. DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL (CONTINUED) The table below summarizes changes in interest revenue and interest expense due to changes in volume of interest-earning assets and interest-bearing liabilities, and changes in interest rates. Changes attributed to both volume and rate have been allocated based on the proportion of change in each category.
1995 COMPARED TO 1994 1994 COMPARED TO 1993 --------------------------------------------- --------------------------------------------- INCREASE (DECREASE) INCREASE (DECREASE) DUE TO NET DUE TO NET ---------------------------- INCREASE ---------------------------- INCREASE VOLUME RATE (DECREASE) VOLUME RATE (DECREASE) ------ ---- ---------- ------ ---- ---------- (DOLLARS IN THOUSANDS) Interest revenue related to: Interest-bearing deposits with banks ............... $ 11,967 $ 65,427 $ 77,394 $ 6,478 $ 1,477 $ 7,955 Securities purchased under resale agreements and securities borrowed ...... 132,459 64,557 197,016 (4,560) 34,340 29,780 Federal funds sold ......... (2,295) 6,756 4,461 116 7,592 7,708 Trading account assets ..... (6,201) 1,243 (4,958) 5,262 4,140 9,402 Investment securities: U.S. Treasury and Federal agencies ............... 39,010 20,675 59,685 67,284 (7,732) 59,552 State and political subdivisions ........... 3,365 10,241 13,606 19,544 (2,368) 17,176 Other investments ........ (42,292) 37,062 (5,230) 22,879 (1,780) 21,099 Loans: Domestic ................. 11,089 44,470 55,559 24,546 7,791 32,337 Foreign .................. 4,588 8,088 12,676 23,392 1,562 24,954 ------- ------- ------- ------- ------- ------- Total interest-earning assets .................. 151,690 258,519 410,209 164,941 45,022 209,963 ------- ------- ------- ------- ------- ------- Interest expense related to: Deposits: Savings ................ (2,155) 30,642 28,487 (3,764) 5,238 1,474 Time ................... (5,161) 4,541 (620) (2,948) (1,543) (4,491) Foreign ................ 34,667 72,823 107,490 71,312 (1,136) 70,176 Federal funds purchased .... 4,210 9,466 13,676 (31,393) 26,389 (5,004) Securities sold under repurchase agreements .... 104,053 94,179 198,232 25,432 55,157 80,589 Other short-term borrowings 9,821 5,845 15,666 15,081 1,550 16,631 Notes payable .............. (725) 987 262 (12,846) 4,882 (7,964) Long-term debt ............. (73) (27) (100) 499 (1,897) (1,398) ------- ------- ------- ------- ------- ------- Total interest-bearing liabilities ............... 144,637 218,456 363,093 61,373 88,640 150,013 ------- ------- ------- ------- ------- ------- Net Interest Revenue ..... $ 7,053 $ 40,063 $ 47,116 $103,568 $(43,618) $ 59,950 ======== ======== ======== ======== ======== ========
INVESTMENT PORTFOLIO State Street adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," on January 1, 1994. Under SFAS No. 115, debt securities for which State Street has the intent and ability to hold to maturity are classified as held-to- maturity securities and reported at amortized cost. Securities that are classified as available-for-sale securities are reported at fair value. Investment securities consisted of the following at December 31:
1995 1994 1993 --------- --------- --------- (DOLLARS IN THOUSANDS) HELD TO MATURITY (at amortized cost) U.S. Treasury and Federal agencies ........................ $ 824,399 $1,668,987 $1,272,370 State and political subdivisions .......................... 1,130,197 1,083,879 Asset-backed securities ................................... 2,346,931 2,028,099 Other investments ......................................... 41,155 99,756 ---------- ---------- ---------- Total ................................................. $ 824,399 $5,187,270 $4,484,104 ========== ========== ========== AVAILABLE FOR SALE (at fair value*) U.S. Treasuries and Federal agencies ...................... $2,283,982 $3,319,417 $1,317,880 State and political subdivisions .......................... 1,306,233 Asset-backed securities ................................... 1,665,361 Other investments ......................................... 279,788 162,892 483,502 ---------- ---------- ---------- Total ................................................. $5,535,364 $3,482,309 $1,801,382 ========== ========== ==========
* In 1993 at lower of cost or market On November 15, 1995, the Financial Accounting Standards Board issued a Special Report, "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities." In accordance with provisions in that Special Report, State Street chose to reclassify certain securities from held to maturity to available for sale on December 1, 1995. At the date of transfer, the amortized cost of those securities was $3,828,808,000 and the net unrealized gain on those securities was $2,684,000, which was recorded net of tax in stockholders' equity at the date of transfer. The maturities of investment securities at December 31, 1995 and the weighted average yields (fully taxable equivalent basis) were as follows:
MATURING ------------------------------------------------------------------------------------------------------ AFTER ONE AFTER FIVE ONE YEAR BUT WITHIN BUT WITHIN AFTER OR LESS FIVE YEARS TEN YEARS TEN YEARS ------------------------ ------------------------ ------------------------ ------------------------ AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD ------ ----- ------ ----- ------ ----- ------ ----- (DOLLARS IN THOUSANDS) HELD TO MATURITY U.S. Treasury and Federal agencies .......... $ 444,480 5.20% $ 379,919 6.22% ---------- ---------- Total ................... $ 444,480 $ 379,919 ========== ========== AVAILABLE FOR SALE U.S. Treasury and Federal agencies .......... $ 470,584 6.49 $1,677,034 6.01 $ 45,173 7.07% $ 91,186 7.25% State and political subdivisions .............. 560,360 6.84 615,342 6.98 88,999 6.98 41,537 7.50 Asset-backed securities...... 1,086,784 6.16 492,833 6.14 51,697 6.00 34,046 6.00 Other investments ........... 39,653 6.03 240,136 5.53 ---------- ---------- -------- -------- Total ................... $2,157,381 $3,025,345 $185,869 $166,769 ========== ========== ======== ========
LOAN PORTFOLIO Domestic and foreign loans at December 31 and average loans outstanding for the years ended December 31, were as follows:
1995 1994 1993 1992 1991 -------------- -------------- -------------- -------------- -------------- (DOLLARS IN THOUSANDS) Domestic: Commercial and financial . $2,572,553 $2,070,145 $1,889,143 $1,519,037 $1,411,994 Real estate .............. 95,782 100,549 94,073 105,156 128,376 Consumer ................. 47,355 41,323 46,315 64,841 75,366 Lease financing .......... 315,115 341,640 254,525 251,761 211,350 ---------- ---------- ---------- ---------- ---------- Total domestic ......... 3,030,805 2,553,657 2,284,056 1,940,795 1,827,086 ---------- ---------- ---------- ---------- ---------- Foreign: Commercial and industrial 633,601 510,638 295,716 50,838 67,622 Banks and other financial institutions ............ 56,984 52,597 25,940 8,838 7,495 Government and official institutions ........... 2,012 1,000 1,000 1,000 1,000 Lease financing .......... 256,146 110,055 70,976 Other .................... 6,594 5,274 2,486 2,242 2,112 ---------- ---------- ---------- ---------- ---------- Total foreign .......... 955,337 679,564 396,118 62,918 78,229 ---------- ---------- ---------- ---------- ---------- Total loans ............ $3,986,142 $3,233,221 $2,680,174 $2,003,713 $1,905,315 ========== ========== ========== ========== ========== Average loans outstanding .. $3,663,713 $3,401,358 $2,576,037 $2,070,345 $2,107,388 ========== ========== ========== ========== ========== Loan maturities for selected loan categories at December 31, 1995 were as follows: AFTER ONE ONE YEAR BUT WITHIN AFTER OR LESS FIVE YEARS FIVE YEARS ------- ---------- ---------- (DOLLARS IN THOUSANDS) Commercial and financial .......................................... $2,089,580 $313,478 $169,495 Real estate ....................................................... 33,175 49,643 12,964 Foreign ........................................................... 678,777 5,845 270,714 The following table shows the classification of the above loans due after one year according to sensitivity to changes in interest rates: (DOLLARS IN THOUSANDS) Loans with predetermined interest rates .................................... $407,101 Loans with floating or adjustable interest rates ........................... 415,038 ------- Total .................................................................. $822,139 ========
Loans are evaluated on an individual basis to determine the appropriateness of renewing each loan. State Street does not have a general rollover policy. Unearned revenue included in loans was $3,458,000 and $4,112,000 at December 31, 1995 and 1994, respectively. NON-ACCRUAL LOANS It is State Street's policy to place loans on a non-accrual basis when they become 60 days past due as to either principal or interest, or when in the opinion of management, full collection of principal or interest is unlikely. 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 nonaccrual 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 current earnings. Past due loans are loans on which principal or interest payments are over 90 days delinquent, but where interest continues to be accrued. The following schedule discloses information concerning non-accrual and past due loans:
DECEMBER 31, ------------------------------------------------------------------- 1995 1994 1993 1992 1991 ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Non-accrual: Domestic ............................. $15,502 $23,043 $26,804 $39,954 $39,620 Foreign .............................. 323 1,337 ------- ------- ------- ------- ------- Total non-accrual .................. $15,502 $23,043 $26,804 $40,277 $40,957 ======= ======= ======= ======= ======= Past due: Domestic ............................. $ 250 $ 41 $ 86 $ 288 $ 44 Foreign .............................. 65 507 ------- ------- ------- ------- ------- Total past due ..................... $ 250 $ 41 $ 86 $ 353 $ 551 ======= ======= ======= ======= ======= The interest revenue for 1995 which would have been recorded related to these non-accrual loans is $2,034,000 for domestic loans. The interest revenue that was recorded on these non-accrual loans was $445,000, all of which relates to domestic loans. ALLOWANCE FOR LOAN LOSSES The changes in the allowance for loan losses for the years ended December 31, were as follows: 1995 1994 1993 1992 1991 ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Balance at beginning of year: Domestic ............................. $52,424 $50,968 $56,987 $64,323 $49,007 Foreign .............................. 5,760 3,348 944 1,565 1,968 ------- ------- ------- ------- ------- Total allowance for loan losses .... 58,184 54,316 57,931 65,888 50,975 ------- ------- ------- ------- ------- Provision (credit) for loan losses: Domestic ............................. 3,789 9,485 10,247 11,734 59,989 Foreign .............................. 4,211 2,084 1,073 467 23 ------- ------- ------- ------- ------- Total provision for loan losses .... 8,000 11,569 11,320 12,201 60,012 ------- ------- ------- ------- ------- Loan charge-offs: Commercial and financial ............. 4,649 10,189 15,241 9,794 33,687 Real estate .......................... 538 1,627 10,553 10,940 Consumer ............................. 140 288 1,416 1,811 2,273 Lease Financing ...................... 203 Foreign .............................. 1,196 261 1,356 870 ------- ------- ------- ------- ------- Total loan charge-offs ............. 6,726 10,477 18,545 23,514 47,770 ------- ------- ------- ------- ------- Recoveries: Commercial and financial ............. 1,874 1,818 1,178 1,414 1,494 Real estate .......................... 895 215 279 747 52 Consumer ............................. 350 415 561 927 681 Foreign .............................. 914 328 187 268 444 -------- ------- ------- ------- ------- Total recoveries ................... 4,033 2,776 2,205 3,356 2,671 ------- ------- ------- ------- ------- Net loan charge-offs ............... 2,693 7,701 16,340 20,158 45,099 ------- ------- ------- ------- ------- Allowance of foreign subsidiary purchased 1,405 Balance at end of year: Domestic ............................. 53,802 52,424 50,968 56,987 64,323 Foreign .............................. 9,689 5,760 3,348 944 1,565 ------- ------- ------- ------- ------- Total allowance for loan losses .... $63,491 $58,184 $54,316 $57,931 $65,888 ======= ======= ======= ======= ======= Ratio of net charge-offs to average loans outstanding ..................... .07% .23% .63% .97% 2.14% ======= ======= ======= ======= =======
ALLOWANCE FOR LOAN LOSSES (continued) State Street establishes an allowance for loan losses to absorb probable credit losses. Management's review of the adequacy of the allowance for loan losses is ongoing throughout the year and is based, among other factors, on the evaluation of the level of risk in the portfolio, the volume of adversely classified loans, previous loss experience, current trends, and expected economic conditions and its effect on borrowers. State Street adopted Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118 on January 1, 1995. SFAS No. 114 requires that the allowance for loan losses related to certain loans be evaluated based on discounted cash flows using the loans initial effective interest rate or the fair value of the underlying collateral for certain collateral dependent loans. Prior to January 1, 1995, the allowance for loan losses related to these loans was based on undiscounted cash flows or the fair value of the collateral for collateral dependent loans. The adoption of SFAS No. 114 did not have a material effect on the financial statements of State Street. While the allowance is established to absorb probable losses inherent in the total loan portfolio, management allocates the allowance for loan losses to specific loans, selected portfolio segments and certain off-balance sheet exposures and commitments. Adversely classified loans in excess of $1 million are individually reviewed to evaluate risk of loss and assigned a specific allocation of the allowance. The allocations are based on an assessment of potential risk of loss and include evaluations of the borrowers' financial strength, discounted cash flows, collateral, appraisals and guarantees. The allocations to portfolio segments and off-balance sheet exposures are based on management's evaluation of relevant factors, including the current level of problem loans and current economic trends. These allocations are also based on subjective estimates and management judgment, and are subject to change from quarter-to-quarter. In addition, a portion of the allowance remains unallocated as a general reserve for the entire loan portfolio. The provision for loan losses is a charge to earnings for the current period which is required to maintain the total allowance at a level considered adequate in relation to the level of risk in the loan portfolio. The provision for loan losses was $8.0 million in 1995, compared with $11.6 million for 1994. At December 31, 1995, the allowance for loan losses was $63.5 million, or 1.59% of loans. This compares with an allowance of $58.2 million or 1.80% of loans a year ago. This decline reflects improvement in measures of credit quality and a continuing satisfactory outlook for general economic conditions and its effect on borrowers. CREDIT QUALITY At December 31, 1995, loans comprised 15% of State Street's assets. State Street's loan policies limit the size of individual loan exposures to reduce risk through diversification. In 1995, net charge-offs declined to $2.7 million from $7.7 million in 1994. Net charge-offs as a percentage of average loans were .07% compared to .23% for 1994. At December 31, 1995, total non-performing assets were $18.7 million, an $8.7 million decrease from year-end 1994. For 1995 and 1994, respectively, non-performing assets include $15.5 million and $23.0 million of non-accrual loans and $3.2 million and $4.4 million of other real estate owned. In 1995, loans placed on non-accrual status were more than offset by charge-offs, payments, and the return to accrual status of several loans. The decline in other real estate owned resulted from property sales. In 1995, measures of credit quality improved, as discussed above, as did the general economic outlook. We expect these levels of credit quality to continue in 1996. It is anticipated that gross charge-offs in 1996 will generally approximate the 1995 level and are expected to be primarily in the commercial and financial category. CROSS-BORDER OUTSTANDINGS Countries with which State Street has cross-border outstandings (primarily deposits and letters of credit to banks and other financial institutions) of at least 1% of its total assets at December 31, 1995, 1994 and 1993, were as follows: 1995 1994 1993 ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Japan ................................. $ 920,426 $1,708,021 $1,688,130 France ................................ 852,257 461,919 519,565 United Kingdom ........................ 834,392 543,055 613,515 Australia ............................. 784,241 648,697 498,671 Germany ............................... 727,741 438,624 339,477 Italy ................................. 620,044 527,682 367,931 Netherlands ........................... 487,270 101,797 224,622 Canada ................................ 359,025 265,322 289,152 Belgium ............................... 336,681 Hong Kong ............................. 206,443 ---------- ---------- ---------- Total outstandings ................ $5,922,077 $4,695,117 $4,747,506 ========== ========== ========== Aggregate of cross-border outstandings in countries having between .75% and 1% of total assets at December 31, 1995 was $240,169,000 (Austria); at December 31, 1994 was $176,988,000 (Switzerland); and at December 31, 1993 was $171,688,000 (Belgium). DEPOSITS The average balance and rates paid on interest-bearing deposits for the years ended December 31, were as follows:
1995 1994 1993 ---------------------- --------------------- --------------------- AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE BALANCE RATE BALANCE RATE BALANCE RATE ------------ -------- ----------- -------- ----------- -------- (DOLLARS IN THOUSANDS) Domestic: Noninterest-bearing deposits ........ $4,063,553 $4,639,336 $4,025,974 Savings deposits .................... 1,912,798 4.45% 1,991,910 2.85% 2,253,434 2.45% Time deposits ....................... 131,008 5.47 172,411 4.52 234,250 5.24 ---------- ---------- ---------- Total domestic ............... $6,107,359 $6,803,657 $6,513,658 ========== ========== ========== Foreign: Noninterest-bearing deposits ...... $ 49,905 $ 61,552 $ 33,037 Interest-bearing .................. 8,470,367 3.82% 7,391,851 2.93% 4,953,696 2.95% ---------- Total foreign .................. $8,520,272 $7,453,403 $4,986,733 ========== ========== ==========
Maturities of domestic certificates of deposit of $100,000 or more at December 31, 1995, were as follows: (DOLLARS IN THOUSANDS) 3 months or less ..................................... $148,937 3 to 6 months ........................................ 13,513 6 to 12 months ....................................... 14,693 Over 12 months ....................................... 1,905 -------- Total ............................................ $179,048 ======== At December 31, 1995, substantially all foreign time deposit liabilities were in amounts of $100,000 or more. Included in noninterest-bearing deposits were foreign deposits of $28,265,000, $44,816,000 and $28,519,000 at December 31, 1995, 1994 and 1993, respectively. RETURN ON EQUITY AND ASSETS AND CAPITAL RATIOS The return on equity, return on assets, dividend payout ratio, equity to assets ratio and capital ratios for the years ended December 31, were as follows:
1995 1994 1993 ---- ---- ---- Net income to: Average stockholders' equity ............................ 16.7% 17.2% 16.8% Average total assets .................................... .94 .97 1.00 Dividends declared to net income .......................... 22.7 20.8 20.8 Average equity to average assets .......................... 5.7 5.6 5.9 Risk-based capital ratios: Tier 1 capital ......................................... 14.0 13.6 12.6 Total capital .......................................... 14.5 14.2 13.1 Leverage Ratio ............................................ 5.6 5.6 5.5
SHORT-TERM BORROWINGS The following table reflects the amounts outstanding and weighted average interest rates of the primary components of short-term borrowings as of and for the years ended:
FEDERAL SECURITIES SOLD FUNDS UNDER REPURCHASE PURCHASED AGREEMEMTS --------- ------------- (DOLLARS IN THOUSANDS) Balance as of December 31: 1995 ......................................................... $ 467,305 $5,120,950 1994 ......................................................... 113,143 4,798,261 1993 ......................................................... 269,083 3,012,498 Maximum outstanding at any month end: 1995 ......................................................... $ 970,530 $7,372,277 1994 ......................................................... 745,443 6,684,105 1993 ......................................................... 1,081,811 5,352,620 Average outstanding during the year: 1995 ......................................................... $ 504,079 $7,080,311 1994 ......................................................... 410,784 4,957,940 1993 ......................................................... 741,082 4,180,945 Weighted average interest rate at end of year: 1995 ......................................................... 3.47% 5.17% 1994 ......................................................... 5.28 4.91 1993 ......................................................... 2.72 2.72 Weighted average interest rate during the year: 1995 ......................................................... 5.89% 5.65% 1994 ......................................................... 3.90 4.07 1993 ......................................................... 2.84 2.89
COMPETITION State Street operates in a highly competitive environment in all areas of its business on a worldwide basis, including servicing financial assets, investment management and commercial lending. In addition to facing strong competition from other deposit taking institutions, State Street faces strong competition from investment management firms, private trustees, insurance companies, mutual funds, broker/dealers, investment banking firms, law firms, benefit consultants, and business service companies. As State Street expands globally, additional sources of competition are encountered. EMPLOYEES At December 31, 1995, State Street had 11,324 employees, of whom 10,996 were full-time. REGULATION AND SUPERVISION State Street is registered with the Board of Governors of the Federal Reserve System (the "Board") as a bank holding company pursuant to the Bank Holding Company Act of 1956, as amended (the "Act"). The Act, with certain exceptions, limits the activities that may be engaged in by State Street and its non-bank subsidiaries, which includes non bank companies which it owns or controls more than 5% of a class of voting shares, to those which are deemed by the Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In making such determination, the Board must consider whether the performance of any such activity by a subsidiary of State Street can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. The Board is authorized to differentiate between activities commenced de novo and those commenced by the acquisition in whole or in part of a going concern. The Board may order a bank holding company to terminate any activity or its ownership or control of a nonbank subsidiary if the Board finds that such activity or ownership or control constitutes a serious risk to the financial safety, soundness or stability of a subsidiary bank and is inconsistent with sound banking principles or statutory purposes. In the opinion of management, all of State Street's present subsidiaries are within the statutory standard or are otherwise permissible. The Act also requires a bank holding company to obtain prior approval of the Board before it may acquire substantially all the assets of any bank or ownership or control of more than 5% of the voting shares of any bank. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act") generally permits bank holding companies to acquire banks located in any state, without regard as to whether the transaction is prohibited under state law, commencing on September 29, 1995. In addition, it generally permits national and state chartered banks to merge across state lines (and thereby create interstate branches) commencing June 1, 1997. Under the provisions of the Interstate Act, states are permitted to "opt out" of this latter interstate branching authority by taking action prior to the commencement date. States may also "opt in" early (i.e., prior to June 1, 1997) to the interstate merger provisions. Further, the Interstate Act provides that states may act affirmatively to permit de novo branching by banking institutions across state lines. The Board has established risk-based capital guidelines that require minimum ratios of capital to risk-weighted assets and certain off-balance sheet credit exposure. The Board also maintains a leverage ratio guideline that is a measure of capital to total average balance sheet assets. Information on State Street's capital appears on the return on equity and assets and capital ratio table of this report. State Street and its non-bank subsidiaries are affiliates of State Street Bank under the federal banking laws, which impose certain restrictions on transfers of funds in the form of loans, extensions of credit, investments or asset purchases by State Street Bank to State Street and its non-bank subsidiaries. Transfers of this kind to State Street and its non-bank subsidiaries by State Street Bank are limited to 10% of State Street Bank's capital and surplus with respect to each affiliate and to 20% in the aggregate, and are also subject to certain collateral requirements. A bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or lease or sale of property or furnishing of services. Federal law also provides that certain transactions with affiliates must be on terms and under circumstances, including credit standards that are substantially the same, or at least as favorable to the institution as those prevailing at the time for comparable transactions involving other non-qualified companies or, in the absence of comparable transactions, on terms and under circumstances, including credit standards, that in good faith would be offered to, or would apply to, nonaffiliated companies. The Board has jurisdiction to regulate the terms of certain debt issues of bank holding companies. State Street, State Street Bank and their affiliates are also subject to restrictions with respect to issuing, floating and underwriting, or publicly selling or distributing, securities in the United States. State Street and its affiliates are able to underwrite and deal in specific categories of securities, including U.S. government and certain agency, state, and municipal securities. Federal Reserve Board regulations require a bank holding company to act as a source of financial and managerial strength to its subsidiary banks. Under this regulation, State Street may be required to commit resources to its subsidiary banks in circumstances where it might not do so absent such regulation. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority payment. The primary banking agency responsible for regulating State Street and its subsidiaries, including State Street Bank, for both domestic and international operations is the Federal Reserve Bank of Boston. State Street is also subject to the Massachusetts bank holding company statute. The Massachusetts statute requires prior approval by the Massachusetts Board of Bank Incorporation for the acquisition by State Street of more than 5% of the voting shares of any additional bank and for other forms of bank acquisitions. State Street's banking subsidiaries are subject to supervision and examination by various regulatory authorities. State Street Bank is a member of the Federal Reserve System and the Federal Deposit Insurance Corporation (the "FDIC") and is subject to applicable federal and state banking laws and to supervision and examination by the Federal Reserve Bank of Boston, as well as by the Massachusetts Commissioner of Banks, the FDIC, and the regulatory authorities of those countries in which a branch of State Street Bank is located. Other subsidiary banks are subject to supervision and examination by the Office of the Comptroller of the Currency or by the appropriate state banking regulatory authorities of the states in which they are located. State Street's foreign banking subsidiaries are also subject to regulation by the regulatory authorities of the countries in which they are located. The capital of each of these banking subsidiaries is in excess of the minimum legal capital requirements as set by those authorities. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") broadened the enforcement powers of the federal banking agencies, including increased power to impose fines and penalties, over all financial institutions, including bank holding companies and commercial banks. As a result of FIRREA, State Street Bank and any or all of its subsidiaries can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC after August 9, 1989, in connection with (a) the default of State Street Bank or any other subsidiary bank or (b) any assistance provided by the FDIC to State Street Bank or any other subsidiary bank in danger of default. The Crime Control Act of 1990 further broadened the enforcement powers of the federal banking agencies in a significant number of areas. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") has as its primary objectives to recapitalize the Bank Insurance Fund and strengthen the regulation and supervision of financial institutions. During 1995, the federal banking agencies continued the process of promulgating regulations to implement the statute. The "Prompt Corrective Action" provisions of the FDICIA are for the stated purpose: "to resolve the problems of insured depository institutions at the least possible long-term loss to the deposit insurance fund." Each federal banking agency has implemented prompt corrective action regulations for the institutions that it regulates. The statute requires or permits the agencies to take certain supervisory actions when an insured depository institution falls within one of five specifically enumerated capital categories. It also restricts or prohibits certain activities and requires the submission of a capital restoration plan when an insured institution becomes undercapitalized. The implementing regulations establish the numerical limits for the capital categories and establish procedures for issuing and contesting prompt corrective action directives. The five tiers of capital measurement range from "well capitalized" to "critically undercapitalized". To be within the category "well capitalized", an insured depository institution must have a total risk- based capital ratio of 10.0 percent or greater, a Tier 1 risk-based capital ratio of 6.0 percent or greater, and a leverage ratio of 5.0 percent or greater, and the institution must not be subject to an order, written agreement, capital directive, or prompt corrective action directive to meet specific capital requirements. An insured institution is "adequately capitalized" if it has a total risk-based capital ratio of 8.0 percent or greater, a Tier 1 risk-based capital ratio of 4.0 percent or greater, and a leverage ratio of 4.0 percent or greater (or a leverage ratio of 3.0 percent or greater if the institution is rated composite 1 under the regulatory rating system). The final three capital categories are levels of undercapitalized, which trigger mandatory statutory provisions. While other factors in addition to capital ratios determine an institution's capital category, State Street Bank's capital ratios were within the "well-capitalized" category at December 31, 1995. The Federal Reserve Board adopted a final rule, as required by the FDICIA, prescribing standards that will limit the risks posed by an insured depository institution's exposure to any other depository institution. Banks are required to develop written policies and procedures to monitor credit exposure to other banks, and to limit to 50% and 25% of total capital exposure to "undercapitalized" banks in 1995 and 1996, respectively. As required by the FDICIA, the FDIC adopted a regulation that permits only well capitalized banks, and adequately capitalized banks that have received waivers from the FDIC, to accept, renew or roll over brokered deposits. Regulations have also been adopted by the FDIC to limit the activities conducted as a principal by, and the equity investments of, state-chartered banks to those permitted for national banks. Banks may apply to the FDIC for approval to continue to engage in accepted investments and activities. Other FDICIA regulations adopted require independent audits, an independent audit committee of the bank's board of directors, stricter truth- in-savings provisions, and standards for real estate lending. The FDICIA amended deposit insurance coverage and the FDIC has implemented a rule specifying the treatment of accounts to be insured up to $100,000. Under other provisions of FDICIA, the federal banking agencies have adopted safety and soundness standards for banks in a number of areas including: internal controls, internal audit systems, information systems, credit underwriting, interest rate risk, executive compensation and minimum earnings. The agencies have also adopted rules to revise risk-based capital standards to take account of interest rate risk, as required by FDICIA. Legislation enacted as part of the Omnibus Budget Reconciliation Act of 1993 provides that deposits in U.S. offices and certain claims for administrative expenses and employee compensation against a U.S. insured depository institution which has failed will be afforded a priority over other general unsecured claims, including deposits in non-U.S. offices and claims under non-depository contracts in all offices, against such an institution in the "liquidation or other resolution" of such and institution by any receiver. Accordingly, such priority creditors (including FDIC, as the subrogee of insured depositors) of State Street Bank will be entitled to priority over unsecured creditors in the event of a "liquidation or other resolution" of such institution. DIVIDENDS As a bank holding company, State Street is a legal entity separate and distinct from State Street Bank and its other non-bank subsidiaries. State Street's principal source of cash revenues is dividends from State Street Bank and its other non-bank subsidiaries. The right of State Street to participate as a stockholder in any distribution of assets of a subsidiary upon its liquidation or reorganization or otherwise is subject to the prior claims by creditors of the subsidiary, including obligations for federal funds purchased and securities sold under repurchase agreements, as well as deposit liabilities. Payment of dividends by State Street Bank is subject to provisions of the Massachusetts banking law which provides that dividends may be paid out of net profits provided (i) capital stock and surplus remain unimpaired, (ii) dividend and retirement fund requirements of any preferred stock have been met, (iii) surplus equals or exceeds capital stock, and (iv) there are deducted from net profits any losses and bad debts, as defined, in excess of reserves specifically established 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, 1995, State Street Bank could have declared and paid dividends of $426,266,000 without regulatory approval. Future dividend payments of the Bank and non-bank subsidiaries cannot be determined at this time. ECONOMIC CONDITIONS AND GOVERNMENT POLICIES Economic policies of the government and its agencies influence the operating environment of State Street. Monetary policy conducted by the Federal Reserve Board directly affects the level of interest rates and overall credit conditions of the economy. Policy instruments utilized by the Federal Reserve Board include open market operations in U.S. Government securities, changes in reserve requirements for depository institutions, and changes in the discount rate and availability of borrowing from the Federal Reserve. ITEM 2. PROPERTIES State Street's headquarters are located in the State Street Bank Building, a 34-story building at 225 Franklin Street, Boston, Massachusetts, which was completed in 1965. State Street leases approximately 451,000 square feet (or approximately 49% of the space in this building) for a 30-year initial term with two successive extension options of 20 years each at negotiated rental rates. State Street exercised the first of the two options which became effective on January 1, 1996 for a term of 20 years. State Street owns five buildings located in Quincy, Massachusetts, a suburb of Boston. Four of the buildings, containing a total of approximately 1,365,000 square feet, function as State Street Bank's operations facilities. State Street Bank occupies approximately 1,320,000 square feet and subleases the remaining space. The fifth building, with 186,000 square feet, is leased to Boston Financial Data Services, Inc., a 50% owned affiliate. Additionally, State Street owns a 98,000 square foot building in Westborough, Massachusetts which is used as a second data center. The remaining offices and facilities of State Street and its subsidiaries are leased. As of December 31, 1995, the aggregate mortgage and lease payments, net of sublease revenue, payable within one year amounted to $38,143,000, plus assessments for real estate tax, cleaning and operating escalations. For additional information relating to premises, see Note E to the Notes to Financial Statements. ITEM 3. LEGAL PROCEEDINGS State Street is subject to pending and threatened legal actions that arise in the normal course of business. In the opinion of management, after discussion with counsel, these can be successfully defended or resolved without a material adverse effect on State Street's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 4.A. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information with regard to each executive officer of State Street. As used herein, the term "executive officer" means an officer who performs policy-making functions for State Street. NAME AGE POSITION - ---- --- -------- Marshall N. Carter .............. 55 Chairman and Chief Executive Officer David A. Spina .................. 53 President and Chief Operating Officer A. Edward Allinson .............. 61 Executive Vice President Dale L. Carleton ................ 50 Executive Vice President Nicholas A. Lopardo ............. 48 Executive Vice President Ronald L. O'Kelley .............. 50 Executive Vice President, Chief Financial Officer and Treasurer Albert E. Petersen .............. 49 Executive Vice President David J. Sexton ................. 55 Executive Vice President All executive officers are elected by the Board of Directors. There are no family relationships among any of the directors and executive officers of State Street. With the exception of Messrs. Carter, O'Kelley and Petersen, all of the executive officers have been officers of State Street for five years of more. Mr. Carter became President of State Street in July, 1991, Chief Executive Officer in January, 1992 and Chairman in January 1993. Prior to joining State Street, he was with Chase Manhattan Bank for 15 years, including the last three as head of global securities services. Mr. Spina became President and Chief Operating Officer in December, 1995. Mr. O'Kelley became an officer of State Street in December, 1995. Prior to joining State Street, he was Vice President and Chief Financial Officer of Douglas Aircraft Company, a subsidiary of McDonnell Douglas Corporation. Prior to that he was Senior Vice President and Chief Financial Officer of Rolls- Royce, Inc. Mr. Petersen became an officer of State Street in August, 1991. Prior to joining State Street, he was an Executive Vice President at First Empire State Corporation, a bank holding company, responsible for operations and systems. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS Information concerning the market prices of and dividends on State Street's common stock during the past two years appears on page 36 of State Street's 1995 Annual Report to Stockholders and is incorporated by reference. There were 5,773 stockholders of record at December 31, 1995. Prior to February 1995, State Street common stock was traded on the NASDAQ National Market System, ticker symbol: STBK. In February 1995, State Street's common stock was listed for trading on the New York Stock Exchange, ticker symbol: STT. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is set forth on page 23 of State Street's 1995 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 1995 Annual Report to Stockholders on pages 2 through 4 and pages 24 through 39 and is incorporated by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL FINANCIAL DATA The Consolidated Financial Statements, Report of Independent Auditors and Supplemental Financial Data appear on pages 40 through 61 of State Street's 1995 Annual Report to Stockholders and are incorporated by reference. In addition, discussion of restrictions on transfer of funds from State Street Bank to Registrant is included in Part 1, Item 1, "Dividends." ITEM 9. CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning State Street's directors appears on pages 2 through 6 of State Street's Proxy Statement for the 1996 Annual Meeting of Stockholders under the caption "Election of Directors" which Statement is to be filed with the Securities and Exchange Commission. Such information is incorporated by reference. Information concerning State Street's executive officers appears under the caption "Executive Officers of the Registrant" in Item 4.A of this Report. Information concerning compliance with Section 16(a) of the Securities Exchange Act appears on page 9 of State Street's Proxy Statement for the 1996 Annual Meeting of Stockholders under the caption "Compliance with Section 16 (a) of the Securities Exchange Act." Such information is incorporated by reference. ITEM 11. EXECUTIVE COMPENSATION Information concerning compensation of the executives of State Street appears on pages 10 through 23 in State Street's Proxy Statement for the 1996 Annual Meeting of Stockholders. Such information is incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information concerning security ownership of certain beneficial owners and management appears on pages 8 and 9 in State Street's Proxy Statement for the 1996 Annual Meeting of Stockholders. Such information is incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information concerning certain relationships and related transactions appears on pages 9 and 10 in State Street's Proxy Statement for the 1996 Annual Meeting of Stockholders under the caption "Certain Transactions." Such information is incorporated by reference. ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) Financial Statements -- The following consolidated financial statements of State Street included in its Annual Report to Stockholders for the year ended December 31, 1995, are incorporated by reference in Item 8 hereof: Consolidated Statement of Income -- Years ended December 31, 1995, 1994 and 1993 Consolidated Statement of Condition -- December 31, 1995 and 1994 Consolidated Statement of Cash Flows -- Years ended December 31, 1995, 1994 and 1993 Consolidated Statement of Changes in Stockholders' Equity - Years ended December 31, 1995, 1994 and 1993 Notes to Financial Statements Report of Independent Auditors (2) Financial Statement Schedules -- Schedules to the consolidated financial statements required by Article 9 of Regulation S-X are not required under the related instructions, are inapplicable, or the information is contained herein and therefore have been omitted. (3) Exhibits A list of the exhibits filed or incorporated by reference appears following page 18 of this Report, which information is incorporated by reference. (b) Reports on Form 8-K No reports on Form 8-K were filed during the last quarter of the period covered by this report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, on March 21, 1996, thereunto duly authorized. STATE STREET BOSTON CORPORATION By /s/ REX S. SCHUETTE ----------------------------- REX S. SCHUETTE Senior Vice President and Comptroller Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 21, 1996 by the following persons on behalf of the registrant and in the capacities indicated. OFFICERS:
/s/ MARSHALL N. CARTER /s/ RONALD L. O'KELLEY ------------------------------------------------- --------------------------------------------- MARSHALL N. CARTER, Chairman RONALD L. O'KELLEY, Executive and Chief Executive Officer Vice President and Chief Financial Officer /s/ REX S. SCHUETTE --------------------------------------------- REX S. SCHUETTE, Senior Vice President and Comptroller DIRECTORS: /s/ TENLEY E. ALBRIGHT /s/ JOSEPH A. BAUTE ------------------------------------------------- --------------------------------------------- TENLEY E. ALBRIGHT JOSEPH A. BAUTE /s/ I. MACALLISTER BOOTH /s/ JAMES I. CASH ------------------------------------------------- --------------------------------------------- I. MACALLISTER BOOTH JAMES I. CASH /s/ TRUMAN S. CASNER /s/ NADER F. DAREHSHORI ------------------------------------------------- --------------------------------------------- TRUMAN S. CASNER NADER F. DAREHSHORI /s/ ARTHUR L. GOLDSTEIN /s/ CHARLES F. KAYE ------------------------------------------------- --------------------------------------------- ARTHUR L. GOLDSTEIN CHARLES F. KAYE /s/ JOHN M. KUCHARSKI /s/ CHARLES R. LAMANTIA ------------------------------------------------- --------------------------------------------- JOHN M. KUCHARSKI CHARLES R. LAMANTIA /s/ DAVID B. PERINI /s/ DENNIS J. PICARD ------------------------------------------------- --------------------------------------------- DAVID B. PERINI DENNIS J. PICARD /s/ ALFRED POE /s/ BERNARD W. REZNICEK ------------------------------------------------- --------------------------------------------- ALFRED POE BERNARD W. REZNICEK /s/ DAVID A. SPINA /s/ ROBERT E. WEISSMAN ------------------------------------------------- --------------------------------------------- DAVID A. SPINA ROBERT E. WEISSMAN
EXHIBIT INDEX EXHIBIT 2. PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION 2.1 Acquisition agreement dated September 27, 1994 among Registrant, Kemper Financial Services, Inc. and DST Systems, Inc. pertaining to the acquisition of IFTC Holdings, Inc. (filed with the Securities and Exchange Commission as Exhibit 2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994 and incorporated by reference) EXHIBIT 3. ARTICLES OF INCORPORATION AND BY-LAWS 3.1 Restated Articles of Organization as amended (filed herewith) 3.2 By-laws as amended (filed with the Securities and Exchange Commission as Exhibit 3.2 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated by reference) 3.3 Certificate of Designation, Preferences and Rights (filed with the Securities and Exchange Commission as Exhibit 3.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated by reference) EXHIBIT 4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS 4.1 The description of the Company's Common Stock included in the Company's effective registration statement report on Form 10, as filed with the Securities and Exchange Commission on September 3, 1970 and amended on May 12, 1971 and incorporated by reference. 4.2 Rights Agreement dated as of September 15, 1988 between State Street Boston Corporation and The First National Bank of Boston, Rights Agent (filed with the Securities and Exchange Commission as Exhibit 4 to Registrant's Current Report on Form 8-K dated September 30, 1988 and incorporated by reference) 4.3 Amendment to Rights Agreement dated as of September 20, 1990 between State Street Boston Corporation and The First National Bank of Boston, Rights Agent (filed with the Securities and Exchange Commission as Exhibit 4 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990 and incorporated by reference) 4.4 Indenture dated as of May 1, 1983 between State Street Boston Corporation and Morgan Guaranty Trust Company of New York, Trustee, relating to the Company's 7 3/4% Convertible Subordinated Debentures due 2008 (filed with the Securities and Exchange Commission as Exhibit 4 to the Registrant's Registration Statement on Form S-3 filed on April 22, 1983, Commission File No. 2-83251 and incorporated by reference) 4.5 Indenture dated as of August 2, 1993 between State Street Boston Corporation and The First National Bank of Boston, as trustee (filed with the Securities and Exchange Commission as Exhibit 4 to the Registrant's Current Report on Form 8-K dated October 8, 1993 and incorporated by reference) 4.6 Instrument of Resignation, appointment, and acceptance, dated as of February 14, 1996 between State Street Boston Corporation, The First National Bank of Boston (resigning trustee) and Fleet National Bank of Massachusetts (successor trustee) (filed herewith) EXHIBIT 10. MATERIAL CONTRACTS Executive Compensation Plans and Agreements: 10.1 State Street Boston Corporation 1981 Stock Option and Performance Share Plan, as amended (filed with the Securities and Exchange Commission as Exhibit 10.2 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1981 and incorporated by reference) 10.2 State Street Boston Corporation 1984 Stock Option Plan as amended (filed with the Securities and Exchange Commission as Exhibit 4(a) to Registrant's Registration Statement on Form S-8 (File No. 2-93157) and incorporated by reference) 10.3 State Street Boston Corporation 1985 Stock Option and Performance Share Plan as amended (filed with the Securities and Exchange Commission as Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1985 and incorporated by reference) 10.4 State Street Boston Corporation 1989 Stock Option Plan as amended (filed with the Securities and Exchange Commission as Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1989 and incorporated by reference) 10.5 State Street Boston Corporation 1990 Stock Option and Performance Share Plan as amended (filed with the Securities and Exchange Commission as Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 and incorporated by reference) 10.6 State Street Boston Corporation Supplemental Executive Retirement Plan, together with individual benefit agreements (filed with the Securities and Exchange Commission as Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated by reference) 10.6A Amendment No. 1 dated as of October 19, 1995, to State Street Boston Corporation Supplemental Executive Retirement Plan (filed herewith) 10.7 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) 10.8 Individual Pension Agreement with A. Edward Allinson dated September 14, 1990 (filed with the Securities and Exchange Commission as Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated by reference) 10.9 Individual Pension Agreement with Albert E. Petersen dated April 5, 1992 (filed with the Securities and Exchange Commission as Exhibit 10.12 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated by reference) 10.10 Revised Termination Benefits Arrangement with Marshall N. Carter (filed herewith) 10.11 State Street Global Advisors Incentive Plan for 1993 (filed with the Securities and Exchange Commission as Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated by reference) 10.12 State Street Global Advisors Incentive Plan for 1994 (filed with the Securities and Exchange Commission as Exhibit 10.15 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated by reference) 10.13 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) 10.13A Amendment No. 1 dated as of October 19, 1995, to 1994 Stock Option and Performance Unit Plan (filed herewith) 10.14 Compensation agreement with J.R. Towers dated September 30, 1994 (filed with the Securities and Exchange Commission as Exhibit 10 to Registrant's Annual Report on Form 10-Q for the year ended September 30, 1994 and incorporated by reference) 10.15 Senior Executives Annual Incentive Plan (filed with the Securities and Exchange Commission as Exhibit 10.16 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated by reference) 10.15A Amendment No. 1 dated as of December 21, 1995, to Senior Executive Annual Incentive Plan (filed herewith) 10.16 State Street Global Advisors Incentive Plan for 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, 1994 and incorporated by reference) 10.17 Supplemental Defined Benefit Pension Plan for Senior Executive Officers (filed with the Securities and Exchange Commission as Exhibit 10.21 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated by reference) 10.18 Nonemployee Director Retirement Plan (filed with the Securities and Exchange Commission as Exhibit 10.22 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated by reference) 10.19 State Street Global Advisors Incentive Plan for 1996 (filed herewith) 10.20 Forms of Employment Agreement with Officers (Levels 1, 2, and 3) approved by the Board of Directors on September, 1995 (filed herewith) 10.21 Compensation Agreement with Ronald L. O'Kelley (filed herewith) EXHIBIT 11. STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 11.1 State Street Boston Corporation Computation of Earnings Per Share EXHIBIT 12. STATEMENT RE COMPUTATION OF RATIOS 12.1 Statement of ratio of earnings to fixed charges EXHIBIT 13. PORTIONS OF ANNUAL REPORT TO STOCKHOLDERS 13.1 Five Year Selected Financial Data 13.2 Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three Years Ended December 31, 1995 (not covered by the Report of Independent Public Accountants) 13.3 Letter to Stockholders 13.4 State Street Boston Corporation Consolidated Financial Statements and Schedules EXHIBIT 21. SUBSIDIARIES 21.1 Subsidiaries of State Street Boston Corporation EXHIBIT 23. CONSENTS OF EXPERTS AND COUNSEL 23.1 Consent of Independent Auditors EXHIBIT 27. FINANCIAL DATA SCHEDULE 27.1 Financial Data Schedule (such schedule is furnished for information of the Securities and Exchange Commission and is not to be deemed "filed" as part of Form 10-K or otherwise subject to the liabilities of Section 18 of the Securities Exchange Act of 1934) (filed herewith) EX-3.1 2 ARTICLES OF ORGANIZATION EXHIBIT 3.1 C.D. ARO--3 (Rev. 8--69) 25M-8-69-0452C6 THE COMMONWEALTH OF MASSACHUSETTS JOHN F.X. DAVOREN Secretary of the Commonwealth STATE HOUSE BOSTON, MASS. ARTICLES OF ORGANIZATION (UNDER G.L. CH. 156B) INCORPORATORS NAME POST OFFICE ADDRESS Include given name in full in case of natural persons; in case of a corporation, give state of incorporation. H. Frederick Hagemann, Jr. 225 Franklin Street Boston, Mass. 02101 George B. Rockwell 225 Franklin Street Boston, Mass. 02101 John T. G. Nichols 225 Franklin Street Boston, Mass. 02101 The above-named incorporator(s) do hereby associate (themselves) with the intention of forming a corporation under the provisions of General Laws, Chapter 156B and hereby state(s): 1. The name by which the corporation shall be known is: State Street Boston Financial Corporation 2. The purposes for which the corporation is formed are as follows: To acquire, hold, dispose of and otherwise deal in and with securities (including but not limited to stocks, shares, evidences of beneficial interest, evidences of indebtedness and evidences of any right to subscribe for or purchase or sell any thereof), and any interest therein, issued or created by or evidencing or representing any interest in any one or more banks, trust companies, other corporations, associations, trusts, firms, partnerships, governments, governmental or political units, instrumentalities, subdivisions, agencies or authorities, or other organizations, persons or entities, public or private; and To engage in any other lawful business or activity in which a corporation organized under the Business Corporation Law of Massachusetts is permitted to engage. NOTE: If provisions for which the space provided under Articles 2, 4, 5, and 6 is not sufficient additions should be set out on continuation sheets to be numbered 2A, 2B, etc. Indicate under each Article where the provision is set out. Continuation sheets shall be on 8 1/2" x 11" paper and must have a left-hand margin 1 inch wide for binding. Only one side should be used. 3. The total number of shares and the par value, if any, of each class of stock which the corporation is authorized is as follows:
- --------------------------------------------------------------------------------------- WITHOUT PAR VALUE WITH PAR VALUE CLASS OF STOCK ------------------------------------------------------------------- NUMBER OF SHARES NUMBER OF SHARES PAR AMOUNT VALUE - --------------------------------------------------------------------------------------- Preferred None None $ - --------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------- Common None 15,000 $10 $150,000 - ---------------------------------------------------------------------------------------
*4. If more than one class is authorized, a description of each of the different classes of stock with, if any, the preferences, voting powers, qualifications, special or relative rights or privileges as to each class thereof and any series now established: None *5. The restrictions, if any, imposed by the Articles of Organization upon the transfer of shares of stock of any class are as follows: None *6. Other lawful provisions, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, or for limiting,defining, or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders: See Continuation Sheets 6A, 6B, 6C and 6D *If there are no provisions state "None". CONTINUATION SHEET 6A By-laws The board of directors is authorized to make, amend or repeal the by-laws of the corporation in whole or in part, except with respect to any provision thereof which by law, by these articles of organization or by the by-laws requires action by the stockholders. Division of Directors into Classes and Tenure of Office and Election Thereof The board of directors shall consist of not less than three nor more than thirty directors, the number of directors to be determined (within the foregoing limits) initially by the incorporators and thereafter at each annual meeting of the stockholders by such stockholders as have the right to vote thereon. The incorporators, in connection with their election of the initial directors, shall elect, as nearly as possible, one-third of such directors to hold office until the 1970 annual meeting of the stockholders, one-third of such directors to hold office until the 1971 annual meeting of the stockholders and one-third of such directors to hold office until the 1972 annual meeting of the stockholders. At the 1970 annual meeting of the stockholders and at each annual meeting of the stockholders thereafter, the stockholders shall elect such number of directors as equals the number of directors then determined by them less the number of directors whose terms do not then expire. Each director so elected shall be elected for such term of office of one, two or three years as will most nearly result in the terms of office of one-third of all the directors expiring at each of the next three annual meetings of the stockholders. Either the stockholders, at any special meeting held for the purpose, or the board of directors, by vote of a majority, of the directors then in office, may increase (subject to the maximum limitation of thirty directors fixed above) the number of directors and elect a new director or directors to fill the vacancy or vacancies so created for such term or terms as will most nearly result in the terms of one-third of all the directors expiring at each of the next three annual meetings of the stockholders. Any other vacancy in the board of directors may be filled by vote of a majority of the remaining directors, and any director elected to fill such a vacancy shall hold office until the next annual meeting of the stockholders, at which time the term to which he was elected shall be deemed to have expired. Except as otherwise provided by law or by these articles of organization or, with respect to the resignation or removal of directors, by, the by-laws, directors shall hold office until the annual meeting of the stockholders at which their terms are scheduled to expire and until either the election thereat of directors to succeed the directors whose terms expire at that meeting or a determination by the stockholders that the total number of directors for the ensuing year shall be such that, in accordance with the foregoing provisions, no directors are to be elected to succeed the directors whose terms expire at that meeting. Directors may be elected to successive terms. No director need be a stockholder. As used herein, the term "annua1 meeting of stockholders" shall include any special meeting of the stockholders held in lieu thereof. Place of Meetings of the Stockholders Meetings of the stockholders may be held anywhere in the United States. Partnership The corporation may be a partner in any business enterprise which the corporation would have power to conduct by itself. Indemnification of Directors, Officers and Others The corporation shall indemnify each person who is or was a director, officer, employee or other agent of the corporation, and each person who is or was serving at the request of the corporation as a director, trustee, officer, employee or other agent of another organization in which it directly or indirectly owns shares or of which it is directly or indirectly a creditor, against all liabilities, costs and expenses, including but not limited to amounts paid in satisfaction of judgments, in settlement or as fines and penalties, and counsel fees and disbursements, reasonably incurred by him in connection with the defense or disposition of or otherwise in connection with or resulting from any action, suit or other proceeding, whether civil, criminal, administrative or investigative, before any court or administrative or legislative or investigative body, in which he may be or may have been involved as a party or otherwise or with which he may be or have been threatened, while in office or thereafter, by reason of his being or having been such a director, officer, employee, agent or trustee, or by reason of any action taken or not taken in any such capacity, except with respect to any matter as to which he shall have been finally adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that his action was in the best interest of the corporation. Expenses, including but not limited to counsel fees and disbursements, so incurred by any such person in defending any such action, suit or proceeding, may be paid from time to time by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the person indemnified to repay the amounts so paid if it shall ultimately be determined that indemnification of such expenses is not authorized hereunder. As to any matter disposed of by settlement by any such person, pursuant to a consent decree or otherwise, no such indemnification either for the amount of such settlement or for any other expenses shall be provided unless such settlement shall be approved as in the best interests of the corporation, after notice that it involves such indemnification, (a) by vote of a majority of the disinterested directors then in Office (even though the disinterested directors be less than a quorum), or (b) by any disinterested person or persons to whom the question may be referred by vote of a majority of such disinterested directors, or (c) by vote of the holders of a majority of the outstanding stock at the time entitled to vote for directors, voting as a single class, exclusive of any stock owned by any interested person, or (d) by any disinterested person or persons to whom the question may be referred by vote of the holders of a majority of such stock. No such approval shall prevent the recovery from any such officer, director, employee, agent or trustee of any amounts paid to him or on his behalf as indemnification in accordance with the preceding sentence if such person is subsequently adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that his action was in the best interests of the corporation. The right of indemnification hereby provided shall not be exclusive of or affect any other rights to which any director, officer, employee, agent or trustee may be entitled or which may lawfully be granted to him. As used herein, the terms "director," "officer," "employee," "agent" and "trustee" include their respective executors, administrators and other legal representatives, an "interested" person is one against whom the action, suit or other proceeding in question or another action, suit or other proceeding on the same or similar grounds is then or had been pending or threatened, and a "disinterested" person is a person against whom no such action, suit or other proceeding is then or had been pending or threatened. By action of the board of directors, notwithstanding any interest of the directors in such action, the corporation may purchase and maintain insurance, in such amounts as the board of directors may from time to time deem appropriate, on behalf of any person who is or was a director, officer, employee or other agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee or other agent of another organization in which it directly or indirectly owns shares or of which it is directly or indirectly a creditor, against any liability incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability. Intercompany Transactions No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other organization of which one or more of its directors or officers are directors, trustees or officers, or in which any of them has any financial or other interest, shall be void or voidable, or in any way affected, solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board of directors or committee thereof which authorizes, approves or ratifies the contract or transaction, or solely because his or their votes are counted for such purpose, if: (a) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee which authorizes approves or ratifies the contract or transaction, and the board or committee in good faith authorizes, approves or ratifies the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (b) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically authorized, approved or ratified in good faith by vote of the stockholders; or (c) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified by the board of directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee thereof which authorizes, approves or ratifies the contract or transaction. No director or officer of the corporation shall be liable or accountable to the corporation or to any of its stockholders or creditors or to any other person, either for any loss to the corporation or to any other person or for any gains or profits realized by such director or officer, by reason of any contract or transaction as to which clauses (a), (b) or (c) above are applicable. 7. By-laws of the corporation have been duly adopted and the initial directors, president, treasurer and clerk, whose names are set out below, have been duly elected. 8. The effective date of organization of the corporation shall be the date of filing with the Secretary of the Commonwealth or if later date is desired, specify date, (not more than 30 days after date of filing.) 9. The following information shall not for any purpose be treated as a permanent part of the Articles of Organization of the corporation. a. The post office address of the initial principal office of the corporation in Massachusetts is: 225 Franklin Street, Boston, Massachusetts 02101 b. The name, residence, and post office address of each of the initial directors and following officers of the corporation are as follows: NAME RESIDENCE POST OFFICE ADDRESS H. Frederick Hagemann, Jr. 30 Woodman Rd. 225 Franklin Street President: Newton, Mass. Boston, Mass. 02101 - ------------------------------------------------------------------------------- John T. G. Nichols Corn Point Rd. 225 Franklin Street Treasurer: Marblehead, Mass. Boston, Mass. 02101 - ------------------------------------------------------------------------------- Eldon C. Swim 6 Nelson Rd. 225 Franklin Street Clerk: Melrose, Mass. Boston, Mass. 02101 - ------------------------------------------------------------------------------- Directors: H. Frederick Hagemann, Jr. (Same As Above) George B. Rockwell 16 Salem Road 225 Franklin Street Wellesley, Mass. Boston, Mass. 02101 John T. G. Nichols (Same As Above) c. The date initially adopted on which the corporation's fiscal year ends is: December 31 d. The date initially fixed in the by-laws for the annual meeting of stockholders of the corporation is: Third Wednesday of April e. The name and business address of the resident agent, if any, of the corporation is: None IN WITNESS WHEREOF and under the penalties of perjury the above-named INCORPORATOR(S) sign(s) these Articles of Organization this sixteenth day of October, 1969. /s/ H. Frederick Hagemann, Jr. --------------------------------------- /s/ George B. Rockwell --------------------------------------- /s/ John T.G. Nichols --------------------------------------- The signature of each incorporator which is not a natural person must be by an individual who shall show the capacity in which he acts and by signing shall represent under the penalties of perjury that he is duly authorized on its behalf to sign these Articles of Organization. Form CD-72. 25M-7-74-104070 THE COMMONWEALTH OF MASSACHUSETTS Secretary of the Commonwealth STATE HOUSE, BOSTON, MASS. 02133 ARTICLES OF AMENDMENT General Laws, Chapter 156B, Section 72 This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the amendment. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts. We, Peter S. Maher , Senior/Vice President, and Dean W. Harrison , Clerk STATE STREET BOSTON FINANCIAL CORPORATION - ------------------------------------------------------------------------------- (Name of Corporation) located at 225 Franklin Street, Boston, Massachusetts 02101 -------------------------------------------------------------------- do hereby certify that the following amendment to the articles of organization of the corporation was duly adopted at a meeting held on April 20, 1977, by vote of 1,664,380 shares of Common 2,280,323 - --------- ----------------- out of --------- shares outstanding, (Class of Stock) - -------- shares of ----------------- out of --------- shares outstanding, and (Class of Stock) - -------- shares of ----------------- out of --------- shares outstanding (Class of Stock) being at least a majority of each class outstanding and entitled to vote thereon: CROSS OUT INAPPLICABLE CLAUSE (1) For amendments adopted pursuant to Chapter 156B, Section 72. (2) For amendments adopted pursuant to Chapter 156B, Section 71. NOTE: Amendments for which the space provided above is not sufficient should be set on continuation sheets to be numbered 2A, 2B, etc. Continuation sheets shall be on 8-1/2" wide x 11" high paper and must have a left-hand margin 1 inch wide for binding. Only one side should be used. The foregoing amendment will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 of the General Laws unelss these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this Twentieth day of April, in the year 1977 /s/ illegible Senior/Vice President - ---------------------------- /s/ illegible - ---------------------------- Clerk Form CD-74, 25M-6-66-942983 THE COMMONWEALTH OF MASSACHUSETTS JOHN F. X. DAVOREN Secretary of the Commonwealth STATE HOUSE, BOSTON, MASS. RESTATED ARTICLES OF ORGANIZATION General Laws, Chapter 156B, Section 74 This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the restated articles of organization. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts. We, George B. Rockwell , President and Winthrop B. Walker , Clerk of State Street Boston Financial Corporation - ------------------------------------------------------------------------------- (Name of Corporation) located at 225 Franklin Street, Boston, Massachusetts 02101 --------------------------------------------------------------- do hereby certify that the following restatement of the articles of organization of the corporation was duly adopted on June 11, 1970, by written consent of the holder of 100 Common Stock 100 - --------- shares of ----------------- out of --------- shares outstanding, (Class of Stock) - --------- shares of ----------------- out of --------- shares outstanding, and (Class of Stock) - --------- shares of ----------------- out of --------- shares outstanding (Class of Stock) being all of the stock outstanding and entitled to vote and of each class or series of stock adversely affected thereby: 1. The name by which the corporation shall be known is:- State Street Boston Financial Corporation 2. The purposes for which the corporation is formed are as follows:- See Continuation Sheet 2A. NOTE: Provisions for which the space provided under articles 2, 4, 5, and 6 is not sufficient should be set out on continuation sheets to be numbered 2A, 2B, etc. Indicate under each article where the provision is set out. Continuation sheets shall be on 8-1/2" wide x 11" high paper and must have a left-hand margin 1 inch wide for binding. Only one side should be used. 3. The total number of shares and the part value, if any, of each class of stock which the corporation is authorized to issue is as follows: WITHOUT PAR VALUE WITH PAR VALUE ----------------- -------------- CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES PAR VALUE - -------------- ---------------- ---------------- --------- Preferred 700,000 0 --- Common 0 3,500,000 $10 *4. If more than one class is authorized, a description of each of the different classes of stock with, if any, the preferences, voting powers, qualifications, special or relative rights or privileges as to each class thereof and any series now established: See Continuation Sheet 4A *5. The restrictions, if any, imposed by the articles of organization upon the transfer of shares of stock of any class are as follows: None *6. Other lawful provision, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders: See Continuation Sheets 6A, 6B and 6C. *If there are no such provisions, state "None". To acquire, hold, dispose of and otherwise deal in and with securities (including but not limited to stocks, shares, evidences of beneficial interest, evidences of indebtedness and evidences of any right to subscribe for or purchase or sell any thereof), and any interest therein, issued or created by or evidencing or representing any interest in any one or more banks, trust companies, other corporations, associations, trusts, firms, partnerships, governments, governmental or political units, instrumentalities, subdivisions, agencies or authorities, or other organizations, persons or entities, public or private; and To engage in any other lawful business or activity in which a corporation organized under the Business Corporation Law of Massachusetts is permitted to engage. The board of directors is authorized, subject to the limitations prescribed by law and these articles, to divide the Preferred Stock into two or more series and to establish and designate each series and fix and determine the variations in the relative rights and preferences as between the different series, provided that all shares of the Preferred Stock shall be identical except that there may be variations fixed and so determined between different series as to: (a) The number of shares constituting each series and the distinctive designation of that series; (b) Whether or not the shares of any series shall be redeemable and, if redeemable, the price (which may vary under different conditions and at different redemption dates), the terms and the manner of redemption, including the date or dates on or after which they shall be redeemable; (c) The dividend rate on the shares of each series, the conditions and dates upon which dividends thereon shall be payable, the extent, if any, to which dividends thereon shall be cumulative, and the relative rights of preference, if any, of payment of dividends thereon; (d) The rights of each series on liquidation, voluntary or involuntary, including dissolution or winding up of the corporation; (e) The sinking fund or purchase fund provisions, if any, applicable to each series, including without limitation the annual amount thereof and the terms relating thereto; (f) The conversion rights, if any, of each series, including the terms and conditions of conversion, which terms and conditions may contain provisions for adjustment of the conversion rate in such events as the board of directors shall determine; and (g) The conditions under which each series shall have separate voting rights or no voting rights, in addltlon to the voting rights provided by law. By-laws The board of directors is authorized to make, amend or repeal the by-laws of the corporation in whole or in part, except with respect to any provision thereof which by law, by these articles of organization or by the by-laws requires action by the stockholders. Place of Meetings of the Stockholders Meetings of the stockholders may be held anywhere in the United States. Partnership The corporation may be a partner in any business enterprise which the corporation would have power to conduct by itself. Indemnification of Directors, Officers and Others The corporation shall indemnify each person who is or was a director, officer, employee or other agent of the corporation, and each person who is or was serving at the request of the corporation as a director, trustee, officer, employee or other agent of another organization in which it directly or indirectly owns shares or of which it is directly or indirectly a creditor, against all liabilities, costs and expenses, including but not limited to amounts paid in satisfaction of judgments, in settlement or as fines and penalties, and counsel fees and disbursements, reasonably incurred by him in connection with the defense or disposition of or otherwise in connection with or resulting from any action, suit or other proceeding, whether civil, criminal, administrative or investigative, before any court or administrative or legislative or investigative body, in which he may be or may have been involved as a party or otherwise or with which he may be or may have been threatened, while in office or thereafter, by reason of his being or having been such a director, officer, employee, agent or trustee, or by reason of any action taken or not taken in any such capacity, except with respect to any matter as to which he shall have been finally adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that his action was in the best interests of the corporation. Expenses, including but not limited to counsel fees and disbursements, so incurred by any such person in defending any such action, suit or proceeding, may be paid from time to time by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the person indemnified to repay the amounts so paid it it shall ultimately be determined that indemnification of such expenses is not authorized hereunder. As to any matter disposed of by settlement by any such person, pursuant to a consent decree or otherwise, no such indemnification either for the amount of such settlement or for any other expenses shall be provided unless such settlement shall be approved as in the best interests of the corporation, after notice that it involves such indemnification, (a) by vote of a majority of the disinterested directors then in office (even though the disinterested directors be less than a quorum), or (b) by any disinterested person or persons to whom the question may be referred by vote of a majority of such disinterested directors, or (c) by vote of the holders of a majority of the outstanding stock at the time entitled to vote for directors, voting as a single class, exclusive of any stock owned by any interested person, or (d) by any disinterested person or persons to whom the question may be referred by vote of the holders of a majority of such stock. No such approval shall prevent the recovery from any such officer, director, employee, agent or trustee of any amounts paid to him or on his behalf as indemnification in accordance with the preceding sentence if such person is subsequently adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that his action was in the best interests of the corporation. The right of indemnification hereby provided shall not be exclusive of or affect any other rights to which any director, officer, employee, agent or trustee may be entitled or which may lawfully be granted to him. As used herein, the terms "director", "officer", "employee", "agent" and "trustee" include their respective executors, administrators and other legal representatives, an "interested" person is one against whom the action, suit or other proceeding in question or another action, suit or other proceeding on the same or similar grounds is then or had been pending or threatened, and a "disinterested" person is a person against whom no such action, suit or other proceeding is then or had been pending or threatened. By action of the board of directors, notwithstanding any interest of the directors in such action, the corporation may purchase and maintain insurance, in such amounts as the board of directors may from time to time deem appropriate, on behalf of any person who is or was a director, officer, employee or other agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee or other agent of another organization in which it directly or indirectly owns shares or of which it is directly or indirectly a creditor, against any liability incurred by him in any such capacity, or arising out of his status as such whether or not the corporation would have the power to indemnify him against such liability. Intercompany Transactions No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other organization of which one or more of its directors or officers are directors, trustees or officers, or in which any of them has any financial or other interest, shall be void or voidable, or in any way affected, solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board of directors or committee thereof which authorizes, approves or ratifies the contract or transaction, or solely because his or their votes are counted for such purpose, if: (a) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee which authorizes, approves or ratifies the contract or transaction, and the board or committee in good faith authorizes, approves or ratifies the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (b) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically authorized, approved or ratified in good faith by vote of the stockholders; or (c) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified by the board of directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee thereof which authorizes, approves or ratifies the contract or transaction. No director or officer of the corporation shall be liable or accountable to the corporation or to any of its stockholders or creditors or to any other person, either for any loss to the corporation or to any other person or for any gains or profits realized by such director or officer, by reason of any contract or transaction as to which clauses (a), (b) or (c) above are applicable. *We further certify that the foregoing restated articles of organization effect no amendments to the articles of organization of the corporation as heretofore amended, except amendments to the following articles 3 and 4. (*If there are no such amendments, state "None".) Article Three is amended by increasing the authorized capital stock of this corporation by (a) 3,485,000 shares of Common Stock, $10 par value, to a total of 3,500,000 shares; and (b) 700,000 shares of Preferred Stock, without par value. Article Four is amended by the addition of provisions authorizing the Board of Directors to divide the Preferred Stock into two or more series and to establish and designate each series and fix and determine the variations in the relative rights and preferences as between the different series. IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this 11th day of June in the year 1970. [ILLEGIBLE] President [ILLEGIBLE] Clerk FORM CD-72-30M 10-79 152328 [ILLEGIBLE] FEDERAL IDENTIFICATION - -------------- Examiner NO. 04-2456637 THE COMMONWEALTH OF MASSACHUSETTS MICHAEL JOSEPH CONNOLLY Secretary of State ONE ASHBURTON PLACE, BOSTON, MASS. 02108 ARTICLES OF AMENDMENT General Laws, Chapter 156B, Section 72 This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the amendment. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts. __________ We, Robert J. Malley Senior Vice President, and Christoph H. Schmidt Clerk of STATE STREET BOSTON CORPORATION ............................................................................... (Name of Corporation) located at 225 Franklin Street, Boston, Massachusetts 02110 - ------------- Name Approved do hereby certify that the following amendments to the articles of organization of the corporation was duly adopted at a meeting held on April 21, 1982, by vote of 1,315,382 shares of Common Stock out of 2,111,476 shares outstanding, on Vote (Class of Stock) 1,089,224 shares of Common Stock out of 2,111,476 shares outstanding, on Vote (Class of Stock) CROSS OUT being at least a majority of each class outstanding and entitled INAPPLICABLE to vote thereon:(1) CLAUSE (Vote 1) VOTED: That Article 3 of the Articles of Organization of this C [ ] Corporation is hereby amended to increase the number of authorized P [ ] shares of Common Stock, $10 par value, of the Corporation from M [ ] 3,500,000 to 7,000,000; and that the Board of Directors be and it hereby is authorized to issue any and all of the authorized but unissued shares of the Common Stock, $10 par value, of this Corporation at such time or times, to such persons, and for such lawful consideration, including cash, tangible or intangible property, services or expenses, or as stock dividends, as may be determined from time to time by the Board of Directors. (1) For amendments adopted pursuant to Chapter 156B Section 70. (2) For amendments adopted pursuant to Chapter 156B Section 71. [ILLEGIBLE] _______ Note: If the space provided under any Amendment or item on this form P.C. is insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of paper leaving a left hand margin of at least 1 inch for binding. Additions to more than one Amendment may be continued on a single sheet so long as each Amendment requiring each such addition is clearly indicated. FOR INCREASE IN CAPITAL FILL IN THE FOLLOWING: | -0- shares preferred | | | with par value | 3,500,000 shares common | The total amount of capital | stock already authorized is | | 700,000 shares preferred | | | without par value | -0- shares common | | -0- shares preferred | | | with par value | 3,500,000 shares common | The amount of additional | capital stock authorized is | | 2,800,000 shares preferred | | | without par value | -0- shares common | (Vote 2) VOTED: That Article 3 of the Articles of Organization of this Corporation is hereby amended to increase the number of authorized shares of Preferred Stock, no par value, of the Corporation from 700,000 to 3,500,000; and that the Board of Directors be and it hereby is authorized to issue any and all of the authorized but unissued shares of the Preferred Stock, no par value, of this Corporation at such time or times, to such persons, and for such lawful consideration, including cash, tangible or intangible property, services or expenses, or as stock dividends, as may be determined from time to time by the Board of Directors. The foregoing amendments will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 of The General Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this eleventh day of May, in year 1982. Robert J. Malley Senior Vice President Christoph H. Schmidt Clerk C24 | | $75 C25 | FORM CD-72-30M 10-79 152328 [ILLEGIBLE] ________ FEDERAL IDENTIFICATION Examiner NO. 04-2456637 THE COMMONWEALTH OF MASSACHUSETTS MICHAEL JOSEPH CONNOLLY Secretary of State ONE ASHBURTON PLACE, BOSTON, MASS. 02108 ARTICLES OF AMENDMENT General Laws, Chapter 156B, Section 72 This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the amendment. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts. __________ We, William S. Edgerly President, and Robert J. Malley Secretary of State Street Boston Corporation ............................................................................... (Name of Corporation) located at 225 Franklin Street, Boston, Massachusetts 02101 - ------------- Name Approved do hereby certify that the following amendment to the articles of organization of the corporation was duly adopted at a meeting held on April 20, 1983, by vote of 3,223,000 shares of Common Stock $10.00 par value out of 4,311,465 shares outstanding, (Class of Stock) _________ shares of _____________________________ out of _________ shares outstanding, and (Class of Stock) _________ shares of _____________________________ out of _________ shares outstanding, (Class of Stock) CROSS OUT being at least a majority of each class outstanding and entitled INAPPLICABLE to vote thereon:(2) CLAUSE "VOTED: That Article 3 of the Corporation's Articles of Organization be C [ ] amended to change the authorized common stock from 7,000,000 shares P [ ] having a par value of $10.00 per share to 14,000,000 shares having M [ ] a par value of $1.00 per share; and that the Board of Directors be and it hereby is authorized to issue any and all of the authorized but unissued shares of the Common Stock, $1 par value, of this Corporation at such time or times, to such persons, and for such lawful consideration, including cash, tangible or intangible property, services or expenses, or as stock dividends, as may be determined from time to time by the Board of Directors. (1) For amendments adopted pursuant to Chapter 156B Section 70. (2) For amendments adopted pursuant to Chapter 156B Section 71. 3 - ------- Note: If the space provided under any Amendment or item on this form P.C. is insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of paper leaving a left hand margin of at least 1 inch for binding. Additions to more than one Amendment may be continued on a single sheet so long as each Amendment requiring each such addition is clearly indicated. FOR INCREASE IN CAPITAL FILL IN THE FOLLOWING: | __________ shares preferred | | | with par value | __________ shares common | The total amount of capital | stock already authorized is | | __________ shares preferred | | | without par value | __________ shares common | | __________ shares preferred | | | with par value | __________ shares common | The amount of additional | capital stock authorized is | | __________ shares preferred | | | without par value | __________ shares common | The foregoing amendment will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 of The General Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this 21st day of April, in year 1983. William S. Edgerly President Robert J. Malley Secretary FORM CD-72-3/83 172595 [ILLEGIBLE] ________ FEDERAL IDENTIFICATION Examiner NO. 04-2456637 THE COMMONWEALTH OF MASSACHUSETTS OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE MICHAEL JOSEPH CONNOLLY, SECRETARY ONE ASHBURTON PLACE, BOSTON, MASS. 02108 ARTICLES OF AMENDMENT General Laws, Chapter 156B, Section 72 This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the amendment. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts. __________ We, William S. Edgerly President, and Robert J. Malley Secretary & Clerk of STATE STREET BOSTON CORPORATION ............................................................................... (Name of Corporation) located at 225 Franklin Street, Boston, Massachusetts 02101 - ------------- Name Approved do hereby certify that the following amendment to the articles of organization of the corporation was duly adopted at a meeting held on April 17, 1985, by vote of 6,669,209 shares of Common Stock $1 par value out of 8,241,453 shares outstanding, (Class of Stock) _________ shares of _________________________ out of _________ shares outstanding, and (Class of Stock) _________ shares of _________________________ out of _________ shares outstanding, (Class of Stock) CROSS OUT being at least a majority of each class outstanding and entitled INAPPLICABLE to vote thereon:(2) CLAUSE "VOTED: That Article 3 of the Articles of Organization be amended to change C [ ] the authorized number of shares of Common Stock of the Corporation, P [ ] $1 par value, from 14 million to 28 million." M [ ] (1) For amendments adopted pursuant to Chapter 156B Section 70. (2) For amendments adopted pursuant to Chapter 156B Section 71. [ILLEGIBLE] - ------- Note: If the space provided under any Amendment or item on this form P.C. is insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of paper leaving a left hand margin of at least 1 inch for binding. Additions to more than one Amendment may be continued on a single sheet so long as each Amendment requiring each such addition is clearly indicated. TO CHANGE the number of shares and the par value, if any, of each class of stock within the corporation fill in the following: The total presently authorized is: NO PAR VALUE WITH PAR VALUE PAR KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------- COMMON -0- 14,000,000 $1 - ------------------------------------------------------------------------------- PREFERRED 3,500,000 -0- - ------------------------------------------------------------------------------- CHANGE the total to: NO PAR VALUE WITH PAR VALUE PAR KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------- COMMON -0- 28,000,000 $1 - ------------------------------------------------------------------------------- PREFERRED 3,500,000 -0- - ------------------------------------------------------------------------------- The foregoing amendment will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 of The General Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this 25th day of April, in year 1985 William S. Edgerly President Robert J. Malley Secretary & Clerk FORM CD-72-30M 3/83-172595 [illegible] FEDERAL IDENTIFICATION Examiner NO. 04-2456637 THE COMMONWEALTH OF MASSACHUSETTS OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE MICHAEL JOSEPH CONNOLLY, SECRETARY ONE ASHBURTON PLACE, BOSTON, MASS. 02108 ARTICLES OF AMENDMENT General Laws, Chapter 156B, Section 72 This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the amendment. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts. __________ We, David A. Spina Executive Vice President, and Robert J. Malley Secretary & Clerk of STATE STREET BOSTON CORPORATION ............................................................................... (Name of Corporation) located at 225 Franklin Street, Boston, Massachusetts 02101 - ------------- Name Approved do hereby certify that the following amendment to the articles of organization of the corporation was duly adopted at a meeting held on April 16, 1986, by vote of 14,092,857 shares of Common Stock out of 17,216,198 shares outstanding, (Class of Stock) _________ shares of _________________________ out of _________ shares outstanding, and (Class of Stock) _________ shares of _________________________ out of _________ shares outstanding, (Class of Stock) CROSS OUT being at least a majority of each class outstanding and entitled INAPPLICABLE to vote thereon:(2) CLAUSE "VOTED: That Article 3 of the Articles of Organization be amended to C [ ] increase the authorized number of shares of Common Stock of the P [ ] Corporation, $1 par value, from 28 million to 56 million." M [ ] (1) For amendments adopted pursuant to Chapter 156B Section 70. (2) For amendments adopted pursuant to Chapter 156B Section 71. [illegible] Note: If the space provided under any Amendment or item on this form - ----------- is insufficient, additions shall be set forth on separate 8 1/2 x 11 P.C. sheets of paper leaving a left hand margin of at least 1 inch for binding. Additions to more than one Amendment may be continued on a single sheet so long as each Amendment requiring each such addition is clearly indicated. TO CHANGE the number of shares and the par value, if any, of each class of stock within the corporation fill in the following: The total presently authorized is: NO PAR VALUE WITH PAR VALUE PAR KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------- COMMON -0- 28,000,000 $1 - ------------------------------------------------------------------------------- PREFERRED 3,500,000 -0- - ------------------------------------------------------------------------------- CHANGE the total to: NO PAR VALUE WITH PAR VALUE PAR KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------- COMMON -0- 56,000,000 $1 - ------------------------------------------------------------------------------- PREFERRED 3,500,000 -0- - ------------------------------------------------------------------------------- The foregoing amendment will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 of The General Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this 9th day of May, in year 1986 David A. Spina Executive Vice President Robert J. Malley Clerk and Secretary 030 = $75 FORM CD-72-30M-4/86-808881 [illegible] - ------------ FEDERAL IDENTIFICATION Examiner NO. 04-2456637 THE COMMONWEALTH OF MASSACHUSETTS OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE MICHAEL JOSEPH CONNOLLY, SECRETARY ONE ASHBURTON PLACE, BOSTON, MASS. 02108 ARTICLES OF AMENDMENT General Laws, Chapter 156B, Section 72 This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the amendment. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts. __________ We, David A. Spina Executive Vice President, and Robert J. Malley Secretary & Clerk of STATE STREET BOSTON CORPORATION ............................................................................... (Name of Corporation) located at 225 Franklin Street, Boston, Massachusetts 02101 - ------------- Name Approved do hereby certify that the following amendment to the articles of organization of the corporation were duly adopted at a meeting held on April 15, 1987, by vote of 27,682,822 shares of Common Stock out of 35,116,000 shares outstanding, Amendment #1 (Class of Stock) 27,501,803 shares of Common Stock out of 35,116,000 shares outstanding, Amendment #2 (Class of Stock) shares of out of shares outstanding, - ----------- ---------------- ---------------- (Class of Stock) CROSS OUT being at least two-thirds of each class outstanding and entitled INAPPLICABLE to vote thereon and of each class or series of stock whose rights CLAUSE are adversely affected thereby:(2) Amendment #1 "VOTED: That Article 6 of the Corporation's Articles of Organization be C [ ] amended to add the following new paragraph pursuant to the Business P [ ] Corporation of Massachusetts: M [ ] (See Continuation Sheet 1A, attached) (1) For amendments adopted pursuant to Chapter 156B Section 70. (2) For amendments adopted pursuant to Chapter 156B Section 71. [illegible] Note: If the space provided under any Amendment or item on this form - ----------- is insufficient, additions shall be set forth on separate 8 1/2 x 11 P.C. sheets of paper leaving a left hand margin of at least 1 inch for binding. Additions to more than one Amendment may be continued on a single sheet so long as each Amendment requiring each such addition is clearly indicated. TO CHANGE the number of shares and the par value, if any, of each class of stock within the corporation fill in the following: The total presently authorized is: NO PAR VALUE WITH PAR VALUE PAR KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------- COMMON - ------------------------------------------------------------------------------- PREFERRED - ------------------------------------------------------------------------------- CHANGE the total to: NO PAR VALUE WITH PAR VALUE PAR KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------- COMMON - ------------------------------------------------------------------------------- PREFERRED - ------------------------------------------------------------------------------- STATE STREET BOSTON CORPORATION Continuation Sheet 1A Amendment #1 (continued) "Liability of Directors A director of this corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director notwithstanding any provision of law imposing such liability, provided, however, that this paragraph of Article Six shall not eliminate the liability of a director to the extent such liability is imposed by applicable law (i) for any breach of the director's duty of loyalty to this corporation or its stockholders. (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for any transaction from which the director derived an improper personal benefit, or (iv) for paying a dividend, approving a stock repurchase or making loans which are illegal under certain provisions of Massachusetts law, as the same exists or hereafter may be amended. If Massachusetts law is hereafter amended to authorize the further limitation of the legal liability of the directors of this corporation, the liability of the directors shall then be deemed to be limited to the fullest extent then permitted by Massachusetts law as so amended. Any repeal or modification of this paragraph of this Article Six which may hereafter be effected by the stockholders of this corporation shall be prospective only, and shall not adversely affect any limitation on the liability of a director for acts or omissions prior to such repeal or modification." CONTINUATION SHEET 2A INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS The corporation shall to the fullest extent legally permissible indemnify each person who is or was a director, officer, employee or other agent of the corporpation and each person who is or was serving at the request of the corporation as a director, trustee, officer, employee or other agent of another corporation or of any partnership, joint venture, trust, employee benefit plan or other enterprise or organization against all liabilities, costs and expenses, including but not limited to amounts paid in satisfaction of judgments, in settlement or as fines and penalties, and counsel fees and disbursements, reasonably incurred by him in connection with the defense or disposition of or otherwise in connection with or resulting from any action, suit or other proceeding, whether civil, criminal, administrative or investigative, before any court or administrative or legislative or investigative body, in which he may be or may have been involved as a party or otherwise or with which he may be or may have been threatened, while in office or thereafter, by reason of his being or having been such a director, officer, employee, agent or trustee, or by reason of any action taken or not taken in any such capacity, except with respect to any matter as to which he shall have been finally adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that his action was in the best interests of the corporation (any person serving another organization in one or more of the indicated capacities at the request of the corporation who shall not have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his action was in the best interest of such other organization shall be deemed so to have acted in good faith with respect to the corporation) or to the extent that such matter relates to service with respect to an employee benefit plan, in the best interest of the participants or beneficiaries of such employee benefit plan. Expenses, including but not limited to counsel fees and disbursements, so incurred by any such person in defending any such action, suit or proceeding, shall be paid from time to time by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the person indemnified to repay the amounts so paid if it shall ultimately be determined that indemnification of such expenses is not authorized hereunder. If, in an action, suit or proceeding brought by or in the name of the corporation, a director of the corporation is held not liable for monetary damages, whether because that director is relieved of personal liability under the provisions of this Article Six of the Articles of Organization, or otherwise, that director shall be deemed to have met the standard of conduct set forth above and to be entitled to indemnification for expenses reasonably, incurred in the defense of such action, suit or proceeding. As to any matter disposed of by settlement by any such person, pursuant to a consent decree or otherwise, no such indemnification either for the amount of such settlement or for any other expenses shall be provided unless such settlement shall be approved as in the best interests of the corporation, after notice that it involves such indemnification, (a) by vote of a majority of the disinterested directors then in office (even though the disinterested directors be less than a quorum), or (b) by any disinterested person or persons to whom the question may be referred by vote of a majority of such disinterested directors, or (c) by vote of the holders of a majority of the outstanding stock at the time entitled to vote for directors, voting as a single class, exclusive of any stock owned by any interested person, or (d) by any disinterested person or persons to whom the question may be referred by vote of the holders of a majority of such stock. No such approval shall prevent the recovery from any such director, officer, employee, agent or trustee of any amounts paid to him or on his behalf as indemnification in accordance with the preceding sentence if such person is subsequently adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that his action was in the best interests of the corporation. The right of indemnification hereby provided shall not be exclusive of or affect any other rights to which any director, officer, employee, agent or trustee may be entitled or which may lawfully be granted to him. As used herein, the terms "director", "officer", "employee", "agent" and "trustee" include their respective executors, administrators and other legal representatives, an "interested" person is one against whom the action, suit or other proceeding in question or another action, suit or other proceeding on the same or similar grounds is then or had been pending or threatened, and a "disinterested" person is a person against whom no such action, suit or other proceeding is then or had been pending or threatened. By action of the board of directors, notwithstanding any interest of the directors in such action, the corporation may purchase and maintain insurance, in such amounts as the board of directors may from time to time deem appropriate, on behalf of any person who is or was a director, officer, employee or other agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee or other agent of another corporation or of any partnership, joint venture, trust, employee benefit plan or other enterprise or organization against any liability incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability. Amendment #2 "VOTED: That Article 6 of the Articles of Organization be further amended and restated with respect to indemnification to read as follows: (See Continuation Sheet 2A, attached) The foregoing amendment will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 of The General Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this twenty-fourth day of April, in the year 1987. [Illegible] Executive/Vice President [Illegible] Clerk 027 Form CD-26-3M-8-83 THE COMMONWEALTH OF MASSACHUSETTS OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE [Illegible] MICHAEL JOSEPH CONNOLLY, SECRETARY ONE ASHBURTON PLACE, BOSTON, MASS. 02108 FEDERAL IDENTIFICATION NO. 04-456637 CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING A SERIES OF A CLASS OF STOCK General Laws, Chapter 156B, Section 26 -------- We, Robert J. Malley Vice President, and Robert J. Malley , Clerk of STATE STREET BOSTON CORPORATION - ------------------------------------------------------------------------------ (Name of Corporation) located at 225 Franklin Street, Boston, MA 02110 --------------------------------------------------- do hereby certify that at a meeting of the directors of the corporation held on September 15, 1988, the following vote establishing and designating a series of a class of stock and determining the relative rights and preferences thereof was duly adopted: See continuation sheets numbered 2A through 2A-7 NOTE: Votes for which the space provided above is not sufficient should be set out on continuation sheets to be numbered 2A, 2B, etc. Continuation sheets must have a left-hand margin 1 inch wide for binding and shall be 8-1/2" x 11". Only one side should be used. VOTED: That pursuant to the authority granted to and vested in the Board of Directors in accordance with the provisions of the Articles of Organization, as amended to date, the Board of Directors hereby creates a series of Preferred Stock, without par value, of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences and limitations thereof (in addition to the provisions set forth in the Articles of Organization which are applicable to the Preferred Stock of all classes and series), as set forth in the Certificate of Designation, Preferences and Rights comprising Exhibit A to the Rights Agreement, which is attached hereto and incorporated herein by reference; and Exhibit_A CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS of SERIES A JUNIOR PARTICIPATING PREFERRED STOCK of STATE STREET BOSTON CORPORATION (Pursuant to Section 26 of the Massachusetts Business Corporation Law) State Street Boston Corporation, a corporation organized and existing under the Business Corporation Law of the Commonwealth of Massachusetts (hereinafter called the "Corporation"), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 26 of the Business Corporation Law at a meeting duly called and held on September 15, 1988: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the "Board of Directors" or the "Board") in accordance with the provisions of the Articles of Organization, the Board of Directors hereby creates a series of Preferred Stock, without par value (the "Preferred Stock"), of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences, and limitations thereof (in addition to any provisions set forth in the Articles of Organization of the Corporation which are applicable to the Preferred Stock of all classes and series) as follows: Series A Junior Participating Preferred Stock: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A Preferred Stock shall be 400,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock. Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock, $1 par value (the "Common Stock"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liqui- dation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends, or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Articles of Organization, or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock or as otherwise required by law. Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable. Section 9. Rank. The Series A Preferred Stock shall rank junior with respect to the payment of dividends and the distribution of assets to all other series of the Corporation's Preferred Stock. Section 10. Amendment. The Articles of Organization of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class. 024 FORM CD-72-30M-4/86-808881 [Illegible] FEDERAL IDENTIFICATION - --------- Examiner NO. 04-2456637 THE COMMONWEALTH OF MASSACHUSETTS OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE MICHAEL JOSEPH CONNOLLY, SECRETARY ONE ASHBURTON PLACE, BOSTON, MASS. 02108 ARTICLES OF AMENDMENT General Laws, Chapter 156B, Section 72 This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the amendment. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts. __________ We, Marshall N. Carter President, and Robert J. Malley Clerk of State Street Boston Corporation ............................................................................... (Name of Corporation) located at 225 Franklin Street, Boston, Massachusetts 02210 [Illegible] - ------------- Name Approved do hereby certify that the following amendment to the articles of organization of the corporation was duly adopted at a meeting held on April 15, 1992, by vote of 31,180,121 shares of Common Stock out of 37,248,358 shares outstanding, (Class of Stock) shares of out of shares outstanding, and (Class of Stock) shares of out of shares outstanding, (Class of Stock) CROSS OUT being at least a majority of each class outstanding and entitled INAPPLICABLE to vote thereon:(2) CLAUSE "VOTED: That Article 3 of the Restated Articles of Organization be C [ ] amended to increase the authorized number of shares of Common Stock, P [ ] $1 par value, from 56 million to 112 million, and to authorize the M [ ] Board of Directors to issue such shares from time to time for general corporate purposes." (1) For amendments adopted pursuant to Chapter 156B Section 70. (2) For amendments adopted pursuant to Chapter 156B Section 71. [Illegible] Note: If the space provided under any Amendment or item on this - ----------- form is insufficient, additions shall be set forth on separate P.C. 8 1/2 x 11 sheets of paper leaving a left hand margin of at least 1 inch for binding. Additions to more than one Amendment may be continued on a single sheet so long as each Amendment requiring each such addition is clearly indicated. TO CHANGE the number of shares and the par value, if any, of each class of stock within the corporation fill in the following: The total presently authorized is: NO PAR VALUE WITH PAR VALUE PAR KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------- COMMON -0- 56,000,000 $1 - ------------------------------------------------------------------------------- PREFERRED 3,500,000 -0- - ------------------------------------------------------------------------------- CHANGE the total to: NO PAR VALUE WITH PAR VALUE PAR KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------- COMMON -0- 112,000,000 $1 - ------------------------------------------------------------------------------- PREFERRED 3,500,000 -0- - ------------------------------------------------------------------------------- The foregoing amendment will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 of The General Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this 22nd day of April, in year 1992 Marshall N. Carter President Robert J. Malley Clerk EX-4.6 3 INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS EXHIBIT 4.6 INSTRUMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE, dated as of February 14, 1996 among State Street Boston Corporation, a Massachusetts corporation (the "Corporation"), The First National Bank of Boston, a national banking association, as trustee (the "Resigning Trustee") and Fleet National Bank of Massachusetts, a national banking association, having its principal trust office at One Federal Street, Boston, Massachusetts 02211 (the "Successor Trustee"). WHEREAS, there are presently issued and outstanding $100,000,000. State Street Boston Corporation 5.95% Notes due September 15, 2003, (the "Notes") under an Indenture dated as of August 2, 1993, between the Corporation, and the Resigning Trustee, (the "Senior Indenture"). WHEREAS, there is presently an Indenture dated as of August 9, 1993, between the Corporation and the Resigning Trustee (the "Subordinated Indenture"), under which there is presently no debt outstanding. The Senior Indenture and the Subordinated Indenture are referred to collectively as the "Indenture". WHEREAS, Sections 610 of the Indenture provides that the Trustee may at any time resign by giving written notice to the Corporation. The Corporation shall give notice of the resignation of the Trustee to all Holders of all Securities and the notice shall include the name of the successor Trustee and the address of its Corporate Trust Office; WHEREAS, the Resigning Trustee represents that it has given the Corporation written notice of its resignation as Trustee, a true copy of which is annexed hereto marked Exhibit A; WHEREAS, Section 610 of the Indentures further provides that, if the Trustees shall resign, the Corporation shall appoint a successor Trustee; WHEREAS, the Corporation desires to appoint the Successor Trustee as successor Trustee under the Indentures; WHEREAS, the Board of Directors of the Corporation by a resolution, a true copy of which is annexed hereto marked Exhibit B, authorized the appointment of the Successor Trustee as Trustee under the Indentures, such appointment to become effective upon the execution and delivery of this Instrument by all the parties hereto; WHEREAS, Section 611 of the Indentures provides that the successor Trustee appointed as provided in Section 610 shall execute, acknowledge and deliver to the Corporation and to the retiring Trustee an instrument accepting such appointment, the retiring Trustee shall transfer all property held by it as Trustee to the successor trustee and thereupon the resignation of the retiring Trustee shall become effective and such successor Trustee without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties, of the retiring Trustee; WHEREAS, no successor Trustee shall accept appointment as provided in said Section 611 unless at the time of such acceptance such successor Trustee shall be qualified and eligible under the provisions of Section 609 of the Indentures; WHEREAS, the Successor Trustee is qualified, eligible and willing to accept such appointment as successor Trustee. NOW THEREFORE, THIS INSTRUMENT OF RESIGNATION, APPOINTMENT, AND ACCEPTANCE, WITNESSETH: that for and in consideration of the premises and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby covenanted, declared and decreed by the Corporation, the Successor Trustee and the Resigning Trustee as follows: 1. The Resigning Trustee hereby resigns as Trustee, and its discharge from the trust created by the Indentures shall be effective upon execution and delivery of this Instrument by all the parties hereto. 2. The Corporation hereby accepts the resignation of the Resigning Trustee as Trustee under the Indentures: 3. The Resigning Trustee hereby represents and warrants to the Successor Trustee that: a. To the best of the knowledge of the Resigning Trustee, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, has occurred and is continuing under the Indentures. b. No covenant or condition contained in the Indenture has been waived by the Resigning Trustee or by the Holders of the percentage in aggregate principal amount of the Securities required by the Indentures to effect any such waiver. c. There is no action, suit or proceeding pending or, to be the best of the knowledge of the Resigning Trustee, threatened against the Resigning Trustee before any court or governmental authority arising out of any action or omission by the Resigning Trustee as Trustee under Indentures. 4. The Corporation in the exercise of the authority vested in it pursuant to Section 610 of the Indentures and the resolution, hereby appoints the Successor Trustee as successor Trustee with all the rights, powers, trusts and duties of the Trustee under the Indentures, such appointment to be effective upon the execution and delivery of this Instrument by all the parties hereto. 5. The Successor Trustee hereby represents that it is qualified and eligible under the provisions of Section 609 of the Indentures to be appointed successor Trustee, and hereby accepts appointment as successor Trustee pursuant to Section 611 of the Indentures, effective upon the execution and delivery of this Instrument by all the parties hereto. The Successor Trustee also hereby represents to all of the matters set forth in Exhibit C. 6. The Resigning Trustee hereby grants, gives, bargains, sells, remises, releases, conveys, confirms, assigns, transfers and sets over to the successor Trustee and its successors and assigns, all rights, powers, trusts and duties of the Trustee under the Indentures; and the Resigning Trustee does hereby pay over, assign and deliver to the successor Trustee, any and all money, if any, and property, if any, held by the Resigning Trustee as Trustee. The Corporation for the purpose of more fully and certainly vesting in and confirming to the Successor Trustee said rights, powers, trusts and duties, and at the request of the Successor Trustee, joins in the execution hereof. The Successor Trustee agrees that all documents, instruments and other properties will be held and maintained in the Commonwealth of Massachusetts unless the Corporation otherwise agrees. 7. This Instrument may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. 8. Each of the Corporation, the Resigning Trustee and the Successor Trustee, acknowledges receipt of an executed counterpart of this Instrument. 9. Unless otherwise defined herein, all terms used herein which are defined in the Indenture shall have the meanings assigned to them in the Indentures. 10. This Instrument shall be governed by and construed in accordance with laws of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the parties hereto have caused this Instrument of Resignation, Appointment and Acceptance to be duly executed and their respective seals to be affixed hereto and duly attested all as of the day and year first above written. State Street Boston Corporation By: /s/ John R. Towers -------------------------------- Name: John R. Towers Title: Secretary ATTEST: /s/ Kathleen M. Restuccia ---------------------------------- The First National Bank of Boston, as Resigning Trustee By: /s/ Carol A. Anthony -------------------------------- Name: Carol A. Anthony Title: Authorized Officer (Seal) ATTEST: /s/ Michael R. Garfield ---------------------------------- Fleet National Bank of Massachusetts as Successor Trustee By: /s/ Natalie S. Forrest -------------------------------- Name: Natalie S. Forrest Title: Vice President (Seal) ATTEST: /s/ Virginia Jones ---------------------------------- COMMONWEALTH OF MASSACHUSETTS COUNTY OF SUFFOLK On the 20th day of February, 1996, before me personally came Kathleen M. Restuccia, to me known, who is being by me duly sworn, that she is an Assistant Treasurer of State Street Boston Corporation described in and which executed the above instrument; that he knows the seal of said institution, that the seal affixed to said instrument is such corporate seal; that it was so affixed pursuant to the authority of the Board of Directors of said Corporation; and that she signed her name thereto pursuant to like authority. Notary Public /s/ Leona A. Attardo -------------------------------- Leona A. Attardo Notary Public Commission Expires April 5, 2002 COMMONWEALTH OF MASSACHUSETTS COUNTY OF SUFFOLK On the 14th day of February, 1996, before me personally came Michael R. Garfield, to me known, who is being by me duly sworn, that he is an Assistant Secretary of the First National Bank of Boston described in and which executed the above instrument; that he knows the seal of said authority, that the seal affixed to said instrument is such corporate seal; that it was so affixed pursuant to the authority of the Board of Directors of said Authority; and that he signed his name thereto pursuant to like authority. Notary Public /s/ Judith A Mercurio -------------------------------- Judith A. Mercurio Notary Public Commission Expires April 15, 1999 COMMONWEALTH OF MASSACHUSETTS COUNTY OF SUFFOLK On the 22nd of February, 1996, before me personally came Natalie S. Forrest, to me known, who is being by me duly sworn, that she is a Vice President of Fleet National Bank of Massachusetts, described in and which executed the above instrument; that he knows the seal of said authority; that the seal affixed to said instrument is such corporate seal; that it was so affixed pursuant to the authority of the Board of Directors of said Authority; and that she signed her name thereto pursuant to like authority. Notary Public /s/ Jane M. Bishop -------------------------------- Jane M. Bishop Notary Public Commission Expires March 29, 2002 January 10, 1996 State Street Boston Corporation 225 Franklin Street Boston, MA 02110 Re: Senior Indenture and Subordinated Indenture, each dated as of August 2, 1993 between State Street Boston Corporation and The First National Bank of Boston Ladies/Gentlemen: The First National Bank of Boston hereby resigns as Trustee pursuant to Section 610 of the referenced Senior Indenture and Subordinated Indenture, effective upon the appointment of a successor trustee pursuant to the terms of each Indenture. Very truly yours, THE FIRST NATIONAL BANK OF BOSTON, as Trustee By: /s/ Michael R. Garfield -------------------------------- Michael R. Garfield Senior Counsel CERTIFIED EXCERPT FROM VOTE OF EXECUTIVE COMMITTEE VOTED: That the resignation of The First National Bank of Boston as Trustee (the "Resigning Trustee") under an Indenture dated as of August 2, 1993 among State Street Boston Corporation (the "Corporation") and The First National Bank of Boston (the "Senior Indenture") and under an Indenture dated as of August 2, 1993 among State Street Boston Corporation and The First National Bank of Boston (the "Subordinated Indenture" and, together with the Senior Indenture, the "Indentures"), be and hereby is, accepted; That Fleet National Bank of Massachusetts is hereby appointed as successor Trustee (the "Successor Trustee") under the Indentures; That the Chairman and Chief Executive Officer, the Vice Chairman, the Treasurer, the Senior Vice President and General Counsel, and the Senior Vice President and Comptroller be, and each of them is, hereby authorized to execute and deliver the Instrument of Resignation, Appointment and Acceptance (the "Instrument") among the Corporation, the Resigning Trustee and the Successor Trustee; and That the Chairman and Chief Executive Officer, the Vice Chairman, the Treasurer, the Senior Vice President and General Counsel, and the Senior Vice President and Comptroller be and each of them hereby is authorized and empowered in the name and on behalf of this Corporation to take any and all actions and to execute and deliver any all documents, instruments, agreements or certificates and to do or cause to be done any and all other things as may in the judgment of such officer be deemed necessary or desirable in order to give effect and carry out the intent and purposes of the execution and delivery of any such documents, instruments, agreements or certificates and the doing of any such things to be conclusive evidence of the authority of such officer or officers so acting and to be conclusive evidence of due authorization by the Corporation. I hereby certify that the foregoing is a true excerpt from a vote unanimously passed at a meeting of the Executive Committee of the Board of Directors of State Street Boston Corporation duly called and held on February 8, 1996. I further certify that said vote is in full force and effect as of the date this instrument was executed. Attest: /s/ John R. Towers (SEAL) ----------------------- Date: February 9, 1996 EXHIBIT C SUCCESSOR TRUSTEE REPRESENTATIONS The Successor Trustee hereby represents to the following: (a) the Successor Trustee is a trust company or a bank having the powers of a trust company located in Massachusetts (b) the Successor Trustee has a capital and surplus of not less than $50,000,000. (c) the Successor Trustee shall execute, deliver, record and file such instruments as are required to confirm or perfect its succession hereunder as successor Trustee. EX-10.6A 4 MATERIAL CONTRACTS EXHIBIT 10.6A AMENDMENT NO. 1 TO THE STATE STREET BOSTON CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Amendment No. 1, effective as of October 19, 1995, to the State Street Boston Corporation Supplemental Executive Retirement Plan (the "Plan"). RECITAL The Board of Directors has approved the following amendment to the Plan: 1. The first sentence of section 4 of the Plan is amended to read in its entirety as follows: "Benefits shall be payable hereunder only to (a) Participants who retire from the Company on or after their Normal Retirement Date, and their Spouses or other Beneficiaries; (b) Participants who retire from the Company after having completed at least five years of Vesting Service, and their Spouses or other Beneficiaries; and (c) Spouses or other Beneficiaries of Participants who die while employed by the Company." 2. Except as amended above, the Plan remains in full force and effect. STATE STREET BOSTON CORPORATION By: /s/ Trevor Lukes ------------------------------- Name: Trevor Lukes Title: Senior Vice President EX-10.10 5 MATERIAL CONTRACTS EXHIBIT 10.10 October 9, 1995 Dear Mr. Carter: Reference is hereby made to the undated letter between you and W.S. Edgerly (on behalf of State Street Boston Corporation (the "Company")) attached hereto as Exhibit A (the "Letter"). This letter agreement supersedes the Letter. This letter agreement is intended to set forth our understanding with respect to certain benefits payable to you in the event of termination of your employment with the Company. Terms used and not defined herein shall have the meaning set forth in the proposed form of Employment Agreement (the "Change in Control Agreement"), attached hereto as Exhibit B. Changes made to said Employment Agreement prior to its execution by you are deemed to apply to this letter also. 1. In the event that your employment is terminated by the Company before July 23, 2001 for any reason other than your death or Cause and you are not eligible for severance under Section 6(a) of the Change in Control Agreement, you shall be entitled to a severance payment equal to 2 times the sum of (x) your base salary plus (y) your maximum bonus applicable in the year of your termination. 2. In the event that your employment is terminated by the Company before July 23, 2001 for any reason other than your death or Cause and you are not eligible for severance under Section 6(a) of the Change in Control Agreement, then for purposes of determining the amount payable to you pursuant to the Company's Supplemental Defined Benefit Pension Plan (the "Plan"): (i) you shall be considered to be 55 years of age (or if older, your age at the date of termination); (ii) the forfeiture provisions of Section 3.3 and 3.4 of the Plan shall be inapplicable: and, (iii) the benefit under Section 4.1 of the Plan shall be calculated by multiplying the amount payable pursuant to Subsection (a) thereof by a fraction, the numerator of which is the number of whole calendar months you were employed by the Company until your date of termination of employment and the denominator of which is 120. 3. If you become employed by a Competitor (as defined below) within 2 years of termination of employment you shall forfeit your right to receive any subsequent payment described in Section 2 of this letter agreement. A "Competitor" shall mean (x) one of the top five master trust or custody banks (other than the Company) listed in the latest published listing contained in Pension and Investments which was published prior to the termination of your employment or (y) one of the top five open-end mutual fund custodians (excluding the Company) listed in the list published by Lipper Analytical Services for the latest quarter available prior to your termination of employment. 4. In the event of Change of Control of the Company, if your employment terminates under circumstances which entitle you to receive a severance payment pursuant to Section 6(a) of the Change in Control Agreement, the Plan shall be considered to be modified in the manner set forth in Paragraph 2 of this letter agreement (but Paragraph 3 hereof shall be inapplicable) and the Plan as so modified shall be considered to be a SERP in which you participate for purposes of adding three years of age and service under Section 6(a)(i)C of the Change in Control Agreement, which is intended to provide you with a benefit equivalent in value to that which you would receive if your employment with the Company continued of an additional three years. Very truly yours, STATE STREET BOSTON CORPORATION By /s/ John R. Towers ----------------------------------- John R. Towers Senior Vice President and General Counsel Accepted: October 19, 1995 /s/ Marshall N. Carter --------------------------------- Marshall N. Carter EX-10.13A 6 MATERIAL CONTRACTS EXHIBIT 10.13A AMENDMENT NO. 1 TO THE STATE STREET BOSTON CORPORATION 1994 STOCK OPTION AND PERFORMANCE UNIT PLAN Amendment No. 1, effective as of October 19, 1995, to the State Street Boston Corporation 1994 Stock Option and Performance Unit Plan (the "Plan"). RECITAL The Board of Directors has approved the following amendments to the Plan: 1. Paragraph 14.A.1 of the Plan is amended to read in its entirety as follows: "1. Acceleration of Options and SARs. Any Options and SARs outstanding as of the date such Change of Control is determined to have occurred and which are not then exercisable shall become exercisable to the full extent of the original grant. Holders of Performance Units granted hereunder as to which the relevant Performance Period has not ended as of the date such Change of Control is determined to have occurred shall be entitled at the time of such Change of Control to receive a cash payment per Performance Unit equal to the Fair Market Value of a share of the Company's Common Stock." 2. Paragraph 14.B of the Plan is amended to read in its entirety as follows: "B. Definition of Change of Control. For purposes of the Plan, a "Change of Control" shall mean the happening of any of the following events: 1. An acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either (x) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); excluding, however, the following acquisitions of Outstanding Company Common Stock and Outstanding Company Voting Securities: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any Person pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (3) of this Paragraph 14B; or 2. Individuals who, as of the effective date of the Plan, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual who becomes a member of the Board subsequent to such effective date, whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board; or 3. Consummation by the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company ("Business Combination"); excluding, however, such a Business Combination pursuant to which (i) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination own, directly or indirectly, more than 50% of, respectively, the outstanding shares of common stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or such corporation resulting from such Business Combination) will beneficially own, directly or indirectly, 25% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors except to the extent that such ownership existed with respect to the Company prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or 4. The approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. 5. Except as amended above, the Plan remains in full force and effect. STATE STREET BOSTON CORPORATION By: /s/Trevor Lukes ------------------------------- Name: Trevor Lukes Title: Senior Vice President EX-10.15A 7 MATERIAL CONTRACTS EXHIBIT 10.15A AMENDMENT NO. 1 TO THE STATE STREET BOSTON CORPORATION SENIOR EXECUTIVES ANNUAL INCENTIVE PLAN Amendment No. 1, effective as of December 21, 1995, to the State Street Boston Corporation Senior Executives Annual Incentive Plan (the "Plan"). RECITAL The Executive Compensation Committee has approved the following amendment to the Plan: 1. The second paragraph of the Plan with respect to eligibility for participation in the Plan is amended to read in its entirety as follows: "Eligibility: The Chief Executive Officer and such members of the Executive Operating Group as are designated as Participants by the Executive Compensation Committee." 2. Except as amended above, the Plan remains in full force and effect. STATE STREET BOSTON CORPORATION By: /s/ Trevor Lukes ------------------------------- Name: Trevor Lukes Title: Senior Vice President EX-10.19 8 MATERIAL CONTRACTS EXHIBIT 10.19 STATE STREET GLOBAL ADVISORS INCENTIVE COMPENSATION PLAN I. Purpose The purpose of the plan is to provide participants with significant incentive to enhance the financial performance of State Street Global Advisors ("SSgA") and State Street Boston Corporation ("SSB"). II. Funding and Incentive Pool Annual financial targets and funding level of the Incentive Pool shall be determined by the CEO of SSgA and the CEO of SSB, subject to the approval of the Executive Compensation Committee of SSB. Annual financial targets, incentive funding levels and operating procedures shall be attached as Schedule A, and amended from time to time, as required. The Incentive Pool shall be allocated between Annual Incentive Awards and a Long Term element. The CEO of SSgA shall determine the percentage of such allocation. Subject to the approval of the CEO of SSB, the CEO of SSgA shall establish financial targets and procedures for the Long Term element. III. Eligibility and Participation All officers and full time non-officers of SSgA are eligible to participate in the Annual Incentive Awards element of the plan. Additionally, such senior officers who have responsibility for direct impact on the financial success of SSgA shall be eligible to participate in the Long Term element of the plan. Participation in the Long Term element of the plan requires prior approval of the CEO of SSB. IV. Miscellaneous No payment shall be made to any employee who ceases to be employed by SSgA, or SSB or one of its subsidiaries, provided, however, that this provision shall not apply if the participant's employment is terminated by reason of death or disability prior to the date of actual payment of incentive or deferral. Should a participant in the plan be terminated as a result of a change in control of either SSgA or any existing balances or deferrals shall be paid at the time of such termination. STATE STREET GLOBAL ADVISORS SCHEDULE A FINANCIAL TARGETS, FUNDING AND OPERATING PROCEDURES 1996 I. Financial Targets and Incentive Pool Funding The incentive pool will be generated based upon achievement of Net Income Before Taxes and Incentive Compensation ("NIBTIC"). For 1996, the pool will be as follows: a. Below $77.0 million NIBTIC, no incentives will be paid. b. At $77.0 million NIBTIC, the incentive pool will be $15.0 million. c. At $104.7 million NIBTIC, the incentive pool will be $26.8 million. d. Between NIBTIC of $77.0 million and $104.7 million, the incentive pool will rise from $15.0 million to $26.8 million in direct proportion with the increase in NIBTIC from $77.0 million to $104.7 million. e. Above $104.7 million NIBTIC, one half NIBTIC will be added to the incentive pool. II. Award Procedures Recommendation and approval of awards shall be as follows: a. Only participants meeting job standards are eligible for awards. b. Participants' managers shall recommend award amounts based upon each participant's contribution to the financial performance of SSgA. c. Award recommendations are subject to the approval of the CEO of SSgA, the CEO and the Executive Compensation Committee of SSB. Payments of awards shall be made in accordance with the following provision: a. Awards to non-officer participants shall be made in February 1997. b. Awards to officer participants shall be made as follows: o 70% in February 1997 o 15% in February 1998 o 15% in February 1999 c. Deferred payments shall earn interest equal to the effective yield to maturity on the one year U.S. Treasury note with an issue date closest to February 15, 1997. All payments are subject to applicable country, state and local tax requirements and shall be made in accordance with the procedures and standards established by SSB for other compensation. EX-10.20 9 MATERIAL CONTRACTS EXHIBIT 10.20 Level 1 (Chairman,President,Chief Financial Officer,Legal Counsel) EMPLOYMENT AGREEMENT AGREEMENT by and between State Street Boston Corporation, a Massachusetts trust company (the "Company") and _________ _________ (the "Executive"), dated as of the 19th day of October, 1995. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on December 31, 1997; provided, however, that commencing on December 31, 1996, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate two years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. 3. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the second anniversary of such date (the "Employment Period"). 4. Terms of Employment. (a) Position and Duties. (I) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the product of the Annual Base Salary and the percentage of base salary actually awarded to the Executive under the Company's annual incentive plans applicable to the Executive in effect from time to time (or any comparable bonus percentage under any predecessor or successor plan), for the last full fiscal year prior to the Effective Date (or in the event that the Executive was not employed by the Company during such fiscal year or was otherwise not a participant in such plan, forty-five (45%) percent) (the "Recent Annual Bonus Percentage"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(I)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the 180th day after the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the Recent Annual Bonus Percentage and (y) the Executive's Annual Base Salary and (z) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to the product of (1) three and (2) the sum of (x) the Executive's Annual Base Salary and (y) an amount equal to the matching contribution made to the State Street Boston Corporation and Certain Related Companies Salary Savings Program for the most recent full fiscal year and (z) the product of (i) the Recent Annual Bonus Percentage and (ii) the Annual Base Salary; and C. an amount equal to the excess of (a) the actuarial equivalent of the benefit under the Company's qualified retirement plan (the "Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Company's Retirement Plan immediately prior to the Effective Date), and any excess or supplemental retirement plan in which the Executive participates or is deemed pursuant to this Agreement to participate (collectively, the "SERP") which the Executive would receive if the Executive's employment continued for three years after the Date of Termination assuming that the Executive's compensation in each of the three years is that required by Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP as of the Date of Termination; (ii) for three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4 (b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period; (iii) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in his sole discretion; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). Anything in this Agreement to the contrary not withstanding, for purposes of calculating the amounts payable to the Executive pursuant to subparagraph 6(a)(i)(C) hereof, the Executive shall be considered to be a participant in the Company's Amended and Restated Supplemental Retirement Plan ("Basic SERP") and Supplemental Defined Benefit Pension Plan ("Super SERP") whether or not the Committee has designated the Executive as a Participant (as such term is defined in the Super SERP or Basic SERP, as the case may be). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. Anything in the Super SEEP to the contrary notwithstanding, Section 3.4 thereof shall be inapplicable to the Executive following any termination of employment (other than for Cause) during the Employment Period. Anything in the SEEP to the contrary notwithstanding, Section 6 thereof shall be inapplicable to the Executive following any termination of employment (other than for Cause) during the Employment Period. 8. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7 8 72(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect to hereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Ernst & Young LLP or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Confidential Information; Restriction on Solicitation of Employees and Clients. (a) The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses and Clients (as defined below), which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. For the purposes of this Section 10, the term "Client" means any person or entity that is a customer or client of the Company or any of its subsidiaries. (b) During the term of employment of the Executive and during the Nonsolicitation Period (as defined below), the Executive shall not, without the prior written consent of the Company, solicit, directly or indirectly (other than through a general solicitation of employment not specifically directed to employees of the Company or its subsidiaries), the employment of any person who within the previous 12 months was an officer of the Company or any of its subsidiaries. For purposes of this Section 10, the term "Nonsolicitation Period" means the period beginning on the date of termination of the Executive's employment with the Company (the "Termination Date") and ending on the earlier of (1) eighteen months after the Termination Date and (2) one year after the Effective Date (if any). (c) During the term of employment of Executive and during the Nonsolicitation Period, the Executive shall not, without the prior consent of the Company, engage in the Solicitation of Business (as defined below) from any Client on behalf of any person or entity other than the Company and its subsidiaries. For the purposes of this Section 10(c), the term "Solicitation of Business" shall mean the attempt through direct personal contact on the part of the Executive with a Client with whom the Executive has had significant personal contact while serving in a Line-Function Capacity (as defined below) during his period of employment to induce such Client to transfer its business relationship from the Company and its subsidiaries to any other person or entity. The term "Line-Function Capacity" means service to the Company and its subsidiaries in a primary capacity other than a staff function, in which the Executive has direct and regular contact with Clients and responsibility for managing the business relationship of the Company and its subsidiaries with such Clients. During the Nonsolicitation Period, the Executive may accept employment with or enter into a business relationship with a person or entity that has or seeks to establish business relationships with one or more Clients provided that the Executive does not engage in the Solicitation of Business from such Clients and does not disclose confidential information concerning such Client and its relationship with the Company and its subsidiaries to any such person or entity. (d) In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (e) This Section 10 shall be effective from and after the date of this Agreement notwithstanding that an Effective Date has not occurred. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall insure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: If to the Company: State Street Boston Corporation 225 Franklin Street Boston, MA 02110 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(I)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a) hereof, prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. --------------------------------------- [Executive] STATE STREET BOSTON CORPORATION By ------------------------------------ EXHIBIT 10.20 Level 2 (All Executive Vice Presidents, Comptroller) EMPLOYMENT AGREEMENT AGREEMENT by and between State Street Boston Corporation, a Massachusetts trust company (the "Company") and _________ _________ (the "Executive"), dated as of the 19th day of October, 1995. The Board of Directors of the Company (the " Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on December 31, 1997; provided, however, that commencing on December 31, 1996, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate two years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. 3. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the second anniversary of such date (the "Employment Period"). 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the product of the Annual Base Salary and the percentage of base salary actually awarded to the Executive under the Company's annual incentive plans applicable to the Executive in effect from time to time (or any comparable bonus percentage under any predecessor or successor plan), for the last full fiscal year prior to the Effective Date (or in the event that the Executive was not employed by the Company during such fiscal year or was otherwise not a participant in such plan, forty-five (45%) percent) (the "Recent Annual Bonus Percentage"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason during the 30-day period immediately following the first anniversary of the Effective Date shall be deemed to be a termination for Good Reason for all purposes of this Agreement. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the Recent Annual Bonus Percentage and (y) the Executive's Annual Base Salary and (z) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to the product of (1) three and (2) the sum of (x) the Executive's Annual Base Salary and (y) an amount equal to the matching contribution made to the State Street Boston Corporation and Certain Related Companies Salary Savings Program for the most recent full fiscal year and (z) the product of (i) the Recent Annual Bonus Percentage and (ii) the Annual Base Salary; and C. an amount equal to the excess of (a) the actuarial equivalent of the benefit under the Company's qualified retirement plan (the "Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Company's Retirement Plan immediately prior to the Effective Date), and any excess or supplemental retirement plan in which the Executive participates or is deemed pursuant to this Agreement to participate (collectively, the "SERP") which the Executive would receive if the Executive's employment continued for three years after the Date of Termination assuming that the Executive's compensation in each of the three years is that required by Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP as of the Date of Termination; (ii) for three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period; (iii) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in his sole discretion; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). Anything in this Agreement to the contrary notwithstanding, for purposes of calculating the amounts payable to the Executive pursuant to subparagraph 6(a)(i)(C) hereof, the Executive shall be considered to be a participant in the Company's Amended and Restated Supplemental Retirement Plan ("Basic SERP") and Supplemental Defined Benefit Pension Plan ("Super SERP") whether or not the Committee has designated the Executive as a Participant (as such term is defined in the Super SERP or Basic SERP, as the case may be). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. Anything in the Super SERP to the contrary notwithstanding, Section 3.4 thereof shall be inapplicable to the Executive following any termination of employment (other than for Cause) during the Employment Period. Anything in the SERP to the contrary notwithstanding, Section 6 thereof shall be inapplicable to the Executive following any termination of employment (other than for Cause) during the Employment Period. 8. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Ernst & Young LLP or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Confidential Information; Restriction on Solicitation of Employees and Clients. (a) The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses and Clients (as defined below), which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. For the purposes of this Section 10, the term "Client" means any person or entity that is a customer or client of the Company or any of its subsidiaries. (b) During the term of employment of the Executive and during the Nonsolicitation Period (as defined below), the Executive shall not, without the prior written consent of the Company, solicit, directly or indirectly (other than through a general solicitation of employment not specifically directed to employees of the Company or its subsidiaries), the employment of any person who within the previous 12 months was an officer of the Company or any of its subsidiaries. For purposes of this Section 10, the term "Nonsolicitation Period" means the period beginning on the date of termination of the Executive's employment with the Company (the "Termination Date") and ending on the earlier of (1) eighteen months after the Termination Date and (2) one year after the Effective Date (if any). (c) During the term of employment of Executive and during the Nonsolicitation Period, the Executive shall not, without the prior consent of the Company, engage in the Solicitation of Business (as defined below) from any Client on behalf of any person or entity other than the Company and its subsidiaries. For the purposes of this Section 10(c), the term "Solicitation of Business" shall mean the attempt through direct personal contact on the part of the Executive with a Client with whom the Executive has had significant personal contact while serving in a Line-Function Capacity (as defined below) during his period of employment to induce such Client to transfer its business relationship from the Company and its subsidiaries to any other person or entity. The term "Line-Function Capacity" means service to the Company and its subsidiaries in a primary capacity other than a staff function, in which the Executive has direct and regular contact with Clients and responsibility for managing the business relationship of the Company and its subsidiaries with such Clients. During the Nonsolicitation Period, the Executive may accept employment with or enter into a business relationship with a person or entity that has or seeks to establish business relationships with one or more Clients provided that the Executive does not engage in the Solicitation of Business from such Clients and does not disclose confidential information concerning such Client and its relationship with the Company and its subsidiaries to any such person or entity. (d) In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (e) This Section 10 shall be effective from and after the date of this Agreement notwithstanding that an Effective Date has not occurred. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: If to the Company: State Street Boston Corporation 225 Franklin Street Boston, MA 02110 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a) hereof, prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. --------------------------------------- [Executive] STATE STREET BOSTON CORPORATION By ------------------------------------ EXHIBIT 10.20 Level 3 (All Senior Vice Presidents) EMPLOYMENT AGREEMENT AGREEMENT by and between State Street Boston Corporation, a Massachusetts corporation (the "Company"), and _________ _________ (the "Executive"), dated as of the 19th day of October, 1995. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on December 31, 1997; provided, however, that commencing on December 31, 1996, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate two years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. 3. Employment Period. The Company hereby agrees to continue the Executive in its employ, and the Executive hereby agrees to remain in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the second anniversary of such date (the "Employment Period"). 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the product of the Annual Base Salary and the percentage of base salary actually awarded to the Executive under the Company's annual incentive plans applicable to the Executive in effect from time to time (or any comparable bonus percentage under any predecessor or successor plan), for the last full fiscal year prior to the Effective Date (or in the event that the Executive was not employed by the Company during such fiscal year or was otherwise not a participant in such plan, thirty-five (35%) percent) (the "Recent Annual Bonus Percentage"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (v) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, if applicable, payment of club dues, and use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 consecutive business days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, (2) the product of (x) the Recent Annual Bonus Percentage and (y) the Executive's Annual Base Salary and (z) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365 and (3) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter referred to as the "Accrued Obligations"); and B. the amount equal to the product of (1) two and (2) the sum of (x) the Executive's Annual Base Salary and (y) an amount equal to the matching contribution made to the State Street Boston Corporation and Certain Related Companies Salary Savings Program for the most recent full fiscal year; and C. an amount equal to the excess of (a) the actuarial equivalent of the benefit under the Company's qualified retirement plan (the "Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Company's Retirement Plan immediately prior to the Effective Date), and any excess or supplemental retirement plan in which the Executive participates or is deemed pursuant to this Agreement to participate (collectively, the "SERP") which the Executive would receive if the Executive's employment continued for two years after the Date of Termination assuming that the Executive's compensation in each of the two years is that required by Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the SERP as of the Date of Termination; (ii) for two years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period; (iii) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in his sole discretion; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). Anything in this Agreement to the contrary notwithstanding, for purposes of calculating the amounts payable to the Executive pursuant to subparagraph 6(a)(i)(C) hereof, the Executive shall be considered to be a participant in the Company's Amended and Restated Supplemental Retirement Plan ("Basic SERP") whether or not the Committee has designated the Executive as a Participant (as such term is defined in Basic SERP). (b) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries. (c) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (d) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. Anything in the Super SERP to the contrary notwithstanding, Section 3.4 thereof shall be inapplicable to the Executive following any termination of employment (other than for Cause) during the Employment Period. Anything in the SERP to the contrary notwithstanding, Section 6 thereof shall be inapplicable to the Executive following any termination of employment (other than for Cause) during the Employment Period. 8. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 9. Certain Reduction of Payments. Notwithstanding the foregoing, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would be nondeductible by the Company for Federal income tax purposes because of Section 280G of the Code, then the aggregate present value of amounts payable or distributable to or for the benefit of the Executive pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value that maximizes the aggregate present value of Agreement Payments without causing any Payment to be nondeductible by the Company because of Section 280G of the Code. For purposes of this Section X, present value shall be determined in accordance with Section 280G(d)(4) of the Code. All determinations required to be made under this Section 9 shall be made by Ernst & Young LLP (the "Accounting Firm"), which shall provide detailed supporting calculations to both the Company and the Executive within 30 business days of the Date of the Change of Control or such earlier time as is requested by the Company. Any such determination by the Accounting Firm shall be binding upon the Company and the Executive. The Executive shall determine which and how much of the Plan Payments (or, at the election of the Executive, other Payments) shall be eliminated or reduced consistent with the requirements of this Section 9, provided that, if the Executive does not make such determination within ten business days of the receipt of the calculations made by the Accounting Firm, the Company shall elect which and how much of the Plan Payments shall be eliminated or reduced consistent with the requirements of this Section 9 and shall notify the Executive promptly of such election. Within five business days thereafter, the Company shall pay to or distribute to or for the benefit of the Executive such amounts as are then due to the Executive under the Plan. As a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Plan Payments will have been made by the Company that should not have been made ("Overpayment") or that additional Plan Payments that will have not been made by the Company could have been made ("Underpayment"), in each case, consistent with the calculations required to be made hereunder. In the event that the Accounting Firm determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Executive, which the Executive shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that no amount shall be payable by the Executive to the Company (or if paid by the Executive to the Company shall be returned to the Executive) if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that the Accounting Firm determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code. 10. Confidential Information; Restriction on Solicitation of Employees and Clients. (a) The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses and Clients (as defined below), which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. For the purposes of this Section 10, the term "Client" means any person or entity that is a customer or client of the Company or any of its subsidiaries. (b) During the term of employment of the Executive and during the Nonsolicitation Period (as defined below), the Executive shall not, without the prior written consent of the Company, solicit, directly or indirectly (other than through a general solicitation of employment not specifically directed to employees of the Company or its subsidiaries), the employment of any person who within the previous 12 months was an officer of the Company or any of its subsidiaries. For purposes of this Section 10, the term "Nonsolicitation Period" means the period beginning on the date of termination of the Executive's employment with the Company (the "Termination Date") and ending on the earlier of (1) eighteen months after the Termination Date and (2) one year after the Effective Date (if any). (c) During the term of employment of Executive and during the Nonsolicitation Period, the Executive shall not, without the prior consent of the Company, engage in the Solicitation of Business (as defined below) from any Client on behalf of any person or entity other than the Company and its subsidiaries. For the purposes of this Section 10(c), the term "Solicitation of Business" shall mean the attempt through direct personal contact on the part of the Executive with a Client with whom the Executive has had significant personal contact while serving in a Line-Function Capacity (as defined below) during his period of employment to induce such Client to transfer its business relationship from the Company and its subsidiaries to any other person or entity. The term "Line-Function Capacity" means service to the Company and its subsidiaries in a primary capacity other than a staff function, in which the Executive has direct and regular contact with Clients and responsibility for managing the business relationship of the Company and its subsidiaries with such Clients. During the Nonsolicitation Period, the Executive may accept employment with or enter into a business relationship with a person or entity that has or seeks to establish business relationships with one or more Clients provided that the Executive does not engage in the Solicitation of Business from such Clients and does not disclose confidential information concerning such Client and its relationship with the Company and its subsidiaries to any such person or entity. (d) In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (e) This Section 10 shall be effective from and after the date of this Agreement notwithstanding that an Effective Date has not occurred. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: If to the Company: State Street Boston Corporation 225 Franklin Street Boston, MA 02110 Attention: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a) hereof, prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date this Agreement shall supersede any other agreement between the parties with respect to the subject matter hereof. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. --------------------------------------- [Executive] STATE STREET BOSTON CORPORATION By ------------------------------------ EX-10.21 10 MATERIAL CONTRACTS EXHIBIT 10.21 December 1, 1995 To: Ronald L. O'Kelley SEVERANCE In the event that your employment at State Street Boston Corporation (State Street) is terminated before November 31, 2000 for reasons other than 1) your resignation due to your unilateral decision to take other employment or for personal reasons, or 2) due to your death, or 3) termination for cause, State Street will pay you severance pay, as follows: Severance pay in an amount equal to one year of annual salary in effect on the date of termination of employment, payable in agreed upon installments. The annual bonus paid for the year prior to the year in which employment is terminated, payable in agreed upon installments. A lump sum payment of $200,000. The receipt of any other forms of compensation or benefits (e.g. stock options and performance units) will be determined at the time of termination in accordance with the terms of the plans and the agreements issued under such plans. INDIVIDUAL PENSION BENEFIT State Street agrees to provide you with a non-qualified individual supplemental pension benefit, effective as of December 1, 1995. After five full years of employment, you will be entitled to receive a straight life annuity payable upon retirement at age 55 or thereafter in accordance with the following schedule: STRAIGHT LIFE ANNUITY PAYABLE ON RETIREMENT 55 $51,232 56 $55,450 57 $60,117 58 $64,517 59 $69,373 60 $74,745 61 $80,706 62 $87,346 63 $94,763 64 $103,081 65 $112,441 This pension benefit may be converted to a Joint and Survivor benefit using conversion rates similar to State Street's qualified pension plan. The right to benefits hereunder shall not be assignable and neither you, your spouse or any designated beneficiary shall be entitled to have such benefits made or commuted otherwise than in accordance with the preceding paragraph. This agreement does not create a trust or require current funding. State Street Boston Corporation By: ________________________________ Trevor Lukes Senior Vice President Agreed and Accepted: ______________________________ Ronald L. O'Kelley Date:_________________________ EX-11.1 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 STATE STREET BOSTON CORPORATION COMPUTATION OF EARNINGS PER SHARE YEAR ENDED DECEMBER 31, ---------------------------------- 1995 1994 1993 ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Primary: Average shares outstanding ............. 82,553,704 82,297,360 81,415,826 Common stock equivalents ............... 504,745 525,577 749,560 ---------- ---------- ---------- Primary shares outstanding ........... 83,058,449 82,822,937 82,165,386 ========== ========== ========== Net income ........................... $ 247,109 $ 220,343 $ 189,386 ========== ========== ========== Earnings Per Share -- primary ........ $ 2.98 $ 2.66 $ 2.30 ========== ========== ========== Fully diluted: Average shares outstanding ............. 82,553,704 82,297,360 81,415,826 Common stock equivalent ................ 717,740 525,577 749,560 Assumed conversion of 5% convertible notes ..................... 571,940 631,028 983,338 ---------- ---------- ---------- Fully diluted average shares outstanding .................. 83,843,384 83,453,965 83,148,724 ========== ========== ========== Net income ............................. $ 247,109 $ 220,343 $ 189,386 Elimination of interest on 5% convertible notes and 7 3/4% convertible subordinated debentures less related income tax benefit ...... 147 155 214 ---------- ---------- ---------- Fully diluted net income ............. $ 247,256 $ 220,498 $ 189,600 ========== ========== ========== Earnings Per Share -- fully diluted ...... $ 2.95 $ 2.64 $ 2.28 ========== ========== ========== EX-12.1 12 STATEMENT RE COMPUTATION OF RATIOS EXHIBIT 12 RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1995 1994 1993 1992 1991 ----------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) (A) Excluding interest on deposits: Earnings: Income before income taxes ........ $ 370,242 $343,229 $292,523 $271,163 $241,167 Fixed charges ..................... 494,678 266,985 183,814 189,369 184,630 --------- ------- ------- ------- ------- Earnings as adjusted ........ $ 864,920 $610,214 $476,337 $460,532 $425,797 ========== ======== ======== ======== ======== Income before income taxes: Pretax income from continuing operations as reported .......... $ 366,490 $340,134 $291,091 $270,821 $241,130 Share of pretax income (loss) of 50% owned subsidiaries not included in above .............. 3,752 3,095 1,432 342 37 --------- ------- ------- ------- ------- Net income as adjusted ...... $ 370,242 $343,229 $292,523 $271,163 $241,167 ========== ======== ======== ======== ======== Fixed charges: Interest on other borrowings ...... $ 482,613 $254,780 $170,176 $172,397 $167,714 Interest on long-term debt including amortization of debt issue costs ................ 8,525 8,625 10,022 13,324 13,238 Portion of rents representative of the interest factor in long term lease ...................... 3,540 3,580 3,616 3,648 3,678 --------- ------- ------- ------- ------- Fixed charges ............... $ 494,678 $266,985 $183,814 $189,369 $184,630 ========== ======== ======== ======== ======== Ratio of earnings to fixed charges .. 1.75x 2.29x 2.59x 2.43x 2.31x (B) Including interest on deposits: Adjusted earnings from (A) above .... $ 864,920 $610,214 $476,337 $460,532 $425,797 Add interest on deposits ............ 416,047 280,687 213,890 263,927 306,642 ------- ------- ------- ------- ------- Earnings as adjusted $1,280,967 $890,901 $690,227 $724,459 $732,439 ========== ======== ======== ======== ======== Fixed charges: Fixed charges from (A) above ...... $ 494,678 $266,985 $183,814 $189,369 $184,630 Interest on deposits .............. 416,047 280,687 213,890 263,927 306,642 ------- ------- ------- ------- ------- Adjusted fixed charges .............. $ 910,725 $547,672 $397,704 $453,296 $491,272 ========== ======== ======== ======== ======== Adjusted earnings to adjusted fixed charges ...................... 1.41x 1.63x 1.74x 1.60x 1.49x
EX-13.1 13 ANNUAL REPORT TO SECURITY HOLDERS EXHIBIT 13.1 SELECTED FINANCIAL DATA ----------------------- STATE STREET BOSTON CORPORATION
- -------------------------------------------------------------------------------------------------------------------- Compound Growth (Dollars in millions, Rate except per share data) 1995 1994 1993 1992 1991 1990 90-95 - --------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS Fee revenue....................... $1,119.1 $1,017.3 $ 865.6 $ 743.5 $ 596.4 $ 530.5 16% Gain on sale of credit card loan portfolio...................... 56.2 Interest revenue - taxable equivalent..................... 1,371.5 961.3 751.3 770.7 803.7 874.5 9 Interest expense.................. 907.2 544.1 394.1 449.6 487.6 567.4 10 --------- --------- --------- --------- -------- -------- Net interest revenue - taxable equivalent................. 464.3 417.2 357.2 321.1 316.1 307.1 9 Provision for loan losses......... 8.0 11.6 11.3 12.2 60.0 45.7 --------- --------- --------- --------- -------- -------- Total revenue.................. 1,575.4 1,422.9 1,211.5 1,052.4 908.7 791.9 15 Operating expenses................ 1,174.0 1,057.8 898.7 766.3 646.6 573.1 15 --------- --------- --------- --------- -------- -------- Income before income taxes on a taxable equivalent basis. 401.4 365.1 312.8 286.1 262.1 218.8 13 Income taxes...................... 119.4 119.7 101.7 100.7 89.8 68.7 Taxable equivalent adjustment..... 34.9 25.1 21.7 15.3 21.0 23.0 --------- --------- --------- --------- -------- -------- Net Income..................... $ 247.1 $ 220.3 $ 189.4 $ 170.1 $ 151.3 $ 127.1 14 ========= ========= ========= ========= ======== ======== PER SHARE Earnings: Primary........................ $ 2.98 $ 2.66 $ 2.30 $ 2.07 $ 1.87 $ 1.59 13 Fully diluted.................. 2.95 2.64 2.28 2.04 1.83 1.56 14 Cash dividends declared........... .68 .60 .52 .445 .385 .34 15 Book value at year end............ 19.27 16.22 14.68 12.83 11.11 9.61 15 Closing price..................... 45.00 28.63 37.50 43.75 32.13 17.44 21 Fully diluted shares outstanding.. 83,843 83,454 83,149 83,670 83,088 81,927 ANNUAL AVERAGES Interest-earning assets........... $ 23,120 $ 19,927 $ 16,885 $ 14,504 $10,680 $ 9,369 20 Total assets...................... 26,182 22,795 18,927 16,255 12,194 10,709 20 Noninterest-bearing deposits...... 4,113 4,701 4,059 3,305 2,674 2,453 11 Foreign deposits.................. 8,470 7,392 4,954 3,955 2,648 2,223 31 Long-term debt.................... 127 128 122 146 146 114 2 Stockholders' equity.............. 1,483 1,284 1,125 970 844 707 16 RATIOS Return on equity.................. 16.7% 17.2% 16.8% 17.5% 17.9% 18.0% Return on assets.................. .94 .97 1.00 1.05 1.24 1.19 Total risk-based capital.......... 14.5 14.2 13.1 15.0 16.7 13.8 Internal capital generation rate.. 12.9 13.3 13.1 13.8 14.3 14.2 Leverage.......................... 5.6 5.6 5.5 6.1 6.5 6.5 Employees at year end............. 11,324 11,528 10,445 9,698 8,670 8,545 6 o In 1995, State Street acquired Investors Fiduciary Trust Company in a transaction accounted for as a pooling of interests. All prior period information has been restated to reflect this acquisition. o Results for 1991 include a non-recurring gain on the sale of the credit card loan portfolio, which increased net income $32.6 million, equal to $.41 primary and $.40 fully diluted per share. o Per share amounts for 1990 and 1991 have been restated to reflect a two-for-one stock split distributed in 1992.
EX-13.2 14 ANNUAL REPORT TO SECURITY HOLDERS EXHIBIT 13.2 FINANCIAL REVIEW ---------------- STATE STREET BOSTON CORPORATION This section provides management's discussion and analysis of State Street Boston Corporation's consolidated results of operation for the three years ended December 31, 1995, its financial condition at year-end 1995 and its approach to risk management. It should be read in conjunction with the Financial Statements and Supplemental Financial Data. In 1995, State Street acquired Investors Fiduciary Trust Company in a transaction accounted for as a pooling of interests. All prior period information has been restated to reflect this acquisition. RESULTS OF OPERATIONS SUMMARY Earnings per share were $2.95 on a fully diluted basis, up 12% from 1994. Net income increased 12%. Return on stockholders' equity was 16.7%. Earnings per share growth for the year was driven primarily by new business growth worldwide, including both additional services for existing customers and new relationships; by international transactions, including foreign exchange activity; by increased market valuations; and by improvements in operating efficiency. Two important trends affecting the financial services industry underlie these factors: the continued industry consolidation and the steady growth in cross-border investing. Facilitating cross-border investing, through global custody, multicurrency accounting, international investment management, foreign exchange, and other services, is a State Street focus and strength. Increasing numbers of new and existing customers used these services in 1995, resulting in increased revenues, especially foreign exchange and investment management revenues. Total revenue grew 11%, driven primarily by a 10% increase in fee revenue. The year-over-year growth rate of revenue accelerated as 1995 progressed. Operating expenses were up 11%, supporting growth. Following a two-year program of higher-than-usual investment spending, at 10% of revenue, that component of expense declined to approximately 8% of revenue, a more normal level for State Street, by the fourth quarter. Since many customers pay for services using various combinations of fee revenue and net interest revenue, State Street's focus is on total revenue. Total revenue is defined as fee revenue plus taxable equivalent net interest revenue, less the provision for loan losses. State Street is distinct from most bank holding companies in that more than two-thirds of its revenue is from fees. FEE REVENUE In 1995, fee revenue accounted for 71% of total revenue and was $1,119 million, up $102 million, or 10%, over 1994 due to strong new business growth and the expansion of services used by existing customers. - -------------------------------------------------------------------------------- FEE REVENUE Change (Dollars in millions) 1995 1994 1993 94-95 - -------------------------------------------------------------------------------- Fiduciary compensation .................. $ 823.8 $ 749.8 $657.0 10% Foreign exchange trading ................ 140.7 113.8 82.7 24 Service fees ............................ 59.5 48.2 40.7 23 Processing service fees ................. 53.7 66.8 46.1 (20) Securities gains, net ................... 12.3 1.7 15.8 Other ................................... 29.1 37.0 23.3 (21) -------- -------- ------ Total fee revenue ..................... $1,119.1 $1,017.3 $865.6 10 ======== ======== ====== State Street Boston Corporation December 31, 1995 Charts Data for Management Discussion & Analysis (Annual Report - 1995) (in millions of dollars, except per share data)
1995 1994 1993 1992 1991 Earnings Per Share (Fully Diluted) 2.95 2.64 2.28 2.04 1.83 Dividends Per Share 0.680 0.600 0.520 0.445 0.385 Stockholders' Equity at Year-End 1,587.5 1,337.1 1,201.2 1,039.8 893.2 Total Revenue 1,575.4 1,422.9 1,211.5 1,052.4 908.7 Fee Revenue 1,119.1 1,017.3 865.6 743.5 596.4
FIDUCIARY COMPENSATION. Fiduciary compensation, the largest component of fee revenue, is derived from accounting, custody, information, investment management and trusteeship services. Basic custody for mutual funds and custody and accounting services for other portfolios provide less than 30% of fiduciary compensation; portfolio transaction fees account for less than 10%. Fees are negotiated based on each customer's entire relationship with State Street. Fees are a function of the volume and mix of assets under custody, the number of securities held, portfolio transactions, income collected and the use of State Street's broadening array of other, value-added services such as daily pricing and securities lending. Investment management fees are derived from a variety of products, including index funds, active quantitative strategies and traditional active management, all with different fee structures. Given the variety of services provided and the use of sliding scales which are standard to the industry, changes in portfolio size do not usually have a corresponding impact on State Street's revenue. As a result, revenue is becoming less sensitive to changes in prices of securities. If equity values worldwide were to increase or decrease 10%, State Street estimates that this, by itself, would cause approximately a 1% change in total revenue. If bond values were to change by 10%, less than a 1% change in total revenue would be anticipated. Fiduciary compensation increased $74.0 million, or 10%, to $823.8 million in 1995. Growth in fiduciary compensation in 1995 came equally from existing customers who used additional and more complex services, and from new customers. Revenue from new business installed was partially offset by customer internalization of certain functions, pricing adjustments to retain certain large customers who are using a broader array of services, and customers no longer at State Street for various reasons. The year-over-year growth rate in fiduciary compensation from 1994 results was lowered by six percentage points for these reasons. In addition to fiduciary compensation, certain financial asset services customers generate other types of revenue, particularly foreign exchange trading revenue and net interest revenue. Noninterest-bearing deposits from these customers comprise about 85% of total noninterest-bearing deposits available for investment. These customers also invest substantial and increasing amounts of short-term funds with State Street in the form of foreign deposits and other short-term liabilities, particularly repurchase agreements. Revenue from investing these deposits and funds at favorable spreads is reported as interest revenue. MUTUAL FUND SERVICES. State Street is the largest custodian of mutual funds in the United States, servicing 41% of registered funds, and provides services to offshore funds and in-country funds outside the United States. State Street's capabilities and offshore locations enable it to benefit from the increasingly complex global custody and accounting requirements of mutual funds worldwide. In 1995, the increase in revenue was broad-based. It reflected new business and growth in the number of funds serviced; growth in additional services used, including fund administration and remote servicing; an increase in subcustodian assets; an increase in trading volume; and additional funds offering more than one class of share. This was partially offset by the internalization of fund accounting by some customers, changes in service levels, some repricing for customers using multiple products, lower fees due to the impact of higher interest rates on balance credit arrangements, and the liquidation of some off-shore funds. The total number of funds serviced increased 4%, to 2,842 at year-end 1995. There were 405 new funds -- 367 from existing customers and 38 from new customers. The increase was significantly offset by lost business, liquidations, and mergers of funds due to consolidation within fund groups. Mutual fund assets under custody increased to $1.0 trillion, growing 27% from year-end 1994, primarily reflecting growth in equity funds. INVESTMENT MANAGEMENT. State Street manages assets for corporations, public funds, other large and small institutions and individuals. Revenue growth was strong in 1995, benefiting from new business growth, particularly in the latter half of the year, and market appreciation. The revenue increase reflected growth in international equities in both passively- and actively-managed accounts, cash pools and domestic equities. The increase was partially offset by lost business, changes in fee agreements and lower one-time revenue from new sales of SICAVs (the French equivalent of a mutual fund). MASTER TRUST/MASTER CUSTODY/GLOBAL CUSTODY. State Street provides custody, portfolio accounting, information and other related services for retirement and other financial assets of corporations, public funds, endowments, foundations and nuclear decommissioning trusts. In 1995, revenue grew primarily from the addition of new business, both U.S. and non-U.S. In the United States, where State Street is ranked as the largest servicer of U.S. tax-exempt assets for corporations and public funds, fees from providing portfolio accounting services to new customers grew, partially offset by changes in fee agreements and lost business. Outside the United States, geographically dispersed revenue growth came from both the addition of new customers and the expansion of services provided to existing customers. Securities lending revenue, which comprises less than 5% of total revenue, is a function of the volume of securities lent and interest rate spreads earned on cash received as collateral for the securities. In 1995, securities lending revenue increased despite slightly narrower average spreads, reflecting growth in securities lent. DEFINED CONTRIBUTION PLAN SERVICES. Revenue from servicing defined contribution plans, such as 401(k) plans, and ESOPs grew significantly as a result of new business. The number of participant accounts serviced increased 27% to 1,472,000. ASSETS UNDER CUSTODY, TRUSTEESHIP AND MANAGEMENT. Assets under custody, trusteeship and management serve to indicate the relative size of various markets served and, in the context of market-value changes, as proxies for business growth. There is not a one-for-one correlation between assets serviced and revenue. This is due to the multiplicity of services used by many of State Street's customers and the declining percentage of revenue coming from asset-based custody and accounting fees as discussed earlier. U.S. equity-market values and bond values increased substantially in 1995. The U.S. equity market, as measured by the S&P 500 index, increased 34%, compared with a decline of 2% in the previous year. Total return in the U.S. bond markets, as measured by the Lehman Brothers Aggregate Bond index, increased 18%, and values increased 10%. This compares with a negative return of 3% and a value decline of 10% in 1994. International equity markets, as measured in dollars by the EAFE index, increased 9%, which compares with an increase of 6% in 1994. In 1995, total assets under custody increased $550 billion, or 32%, to $2.3 trillion. Using broad assumptions, State Street estimates that the net market impact of higher securities values increased assets under custody by approximately $330 billion in 1995. At year-end, approximately 43% of assets under custody were equities, 32% were fixed income instruments and 25% were short-term instruments. Non-U.S. securities comprised 11% of total assets under custody. In 1995, bonds under trusteeship increased $73 billion to $283 billion, primarily due to the acquisitions of Bank of Boston's and BayBanks' corporate trust businesses. Assets managed increased to $226 billion, up $66 billion, or 41%, from year-end 1994. A $38 billion increase in equities and bonds primarily reflected growth in passively-managed equities, for which we receive a relatively low basis-point fee, and higher securities valuations. A $14.6 billion, or 75%, increase in employer securities resulted primarily from new business acquired due to State Street's participant recordkeeping service capabilities for defined contribution pension plans. - --------------------------------------------------------------------------------------------------------------------
ASSETS UNDER CUSTODY, TRUSTEESHIP AND MANAGEMENT Compound DECEMBER 31, Growth Change Rate (Dollars in billions) 1995 1994 1993 1992 1991 1990 94-95 90-95 - -------------------------------------------------------------------------------------------------------------------- ASSETS UNDER CUSTODY Mutual funds/collective investment funds.............. $1,000.5 $ 787.9 $ 795.3 $ 655.5 $ 579.0 $499.8 27% 15% -------- -------- -------- ------- --------- ------ -- -- Customers in: North America: Master trust/master custody/global custody.. 926.5 663.9 574.1 465.9 335.2 250.3 40 30 Corporate trust............ 76.5 67.7 115.1 104.6 78.4 58.5 13 6 Insurance.................. 96.5 62.4 60.4 46.8 37.9 23.1 55 33 Other...................... 63.0 74.2 72.6 72.5 59.8 54.5 (15) 3 Europe........................ 49.5 25.2 20.0 13.2 13.2 9.5 96 39 Asia/Pacific.................. 65.8 47.0 46.1 30.7 31.9 16.1 40 33 -------- -------- -------- ------- --------- ------ Total assets under custody.............. $2,278.3 $1,728.3 $1,683.6 $1,389.2 $1,135.4 $911.8 32 20 ======== ======== ======== ======== ======== ====== BONDS UNDER TRUSTEESHIP Corporate trust.................. $ 282.9 $ 210.0 $ 201.0 $ 136.0 $ 132.0 $108.4 35 21 ======== ======== ======== ======== ======== ====== ASSETS UNDER MANAGEMENT Institutional: Equities and bonds............ $ 112.3 $ 74.7 $ 64.9 $ 50.3 $ 44.4 $ 34.4 50 27 Money markets................. 72.8 60.4 51.7 37.1 21.9 14.0 20 39 Employer securities........... 34.0 19.4 19.7 18.8 17.8 13.8 75 20 Personal......................... 7.4 6.0 5.8 5.2 4.8 3.4 23 17 -------- -------- -------- ------- --------- ------ Total assets under management........... $ 226.5 $ 160.5 $ 142.1 $ 111.4 $ 88.9 $ 65.6 41 28 ======== ======== ======== ======== ======== ======
FOREIGN EXCHANGE TRADING. In 1995, foreign exchange trading revenue was $140.7 million, up 24% from 1994. State Street's foreign exchange activities focus on servicing investment managers around the world, many of whom have their securities under custody with State Street. State Street is gaining market share for portfolios under custody both at State Street and elsewhere. This growth combined with additional risk management activities by customers, resulted in increased transactions in 1995 compared with 1994. Periods of currency volatility created opportunities and heightened customer activity. FEES AND OTHER REVENUE. Service fees of $59.5 million were up 23% from 1994. Revenue reflects loan service fees, trade banking activities, investment banking fees, cash management fees and brokerage fees. The increase was from brokerage activity generated by customers that restructured their investment portfolios, as well as increased investment banking activity, revenues on products providing currency overlay capabilities, and the securitization of receivables. Processing service fees of $53.7 million, down from $66.8 million in 1994, are derived from mortgage servicing, processing unclaimed securities for state governments and corporations, and accounting services for retained-asset accounts of insurance companies. The decrease in 1995 was due to lower volume from unclaimed securities processing and the sale of a nonstrategic business. During 1995, net securities gains on the available-for-sale investment portfolio were $12.3 million. Certain securities were sold as the gain exceeded expected revenue from the spread over the remaining life of the security. A portion of the equity securities acquired in the IFTC transaction were sold. The available-for-sale portfolio is managed for total return, which is comprised of gains and/or losses and interest revenue. The $7.9 million decline in other fee revenue in 1995 was due primarily to an $8.2 million difference in currency translation on the foreign bond investment portfolio. Results included a $2.7 million gain on the sale of a non-strategic business. NET INTEREST REVENUE Net interest revenue is the interest revenue on earning assets reduced by the interest expense on interest-bearing liabilities that are used to fund these assets. Net interest revenue is expressed on a fully taxable equivalent basis to adjust for the tax-exempt status of revenue earned on certain investment securities and loans. In 1995, taxable equivalent net interest revenue was $464.3 million, up 11% over 1994. This increase in net interest revenue was driven by balance sheet growth and higher asset yields, which were significantly offset by the narrower spread between interest rates earned and paid. - ---------------------------------------------------------------------------------------------------------------------
Net Interest Revenue - Taxable Equivalent Change (Dollars in millions) 1995 1994 1993 94-95 - --------------------------------------------------------------------------------------------------------------------- Interest revenue............................................................ $1,336.6 $936.2 $729.6 Taxable equivalent adjustment............................................... 34.9 25.1 21.7 -------- ------ ------ 1,371.5 961.3 751.3 Interest expense............................................................ 907.2 544.1 394.1 -------- ------ ------ Net interest revenue.................................................. $ 464.3 $417.2 $357.2 11% ======== ====== ======
In the first two quarters of 1995, net interest revenue was under pressure due to rising U.S. short-term market interest rates. The 25 basis-point reduction in U.S. short-term interest rates in July eased that pressure temporarily. However, due to the market's anticipation of further rate reductions, the yield curve for U.S. fixed-income instruments flattened, reducing opportunities for the rest of the year. Net interest revenue was positively affected by a larger balance sheet. State Street manages its balance sheet to support the growth of its financial asset services business worldwide. During 1995, State Street continued to strengthen its position in global markets as it experienced strong new business growth that included additional services for current customers as well as new customers. This new business resulted in increasing amounts of funds on the balance sheet from financial asset services customers. Repurchase agreements served as short-term investments and foreign deposits accommodated both transaction and investment needs of customers. In 1995, foreign deposit growth included $777 million of non-U.S. transaction account deposits, which are invested at favorable spreads. Additional customer funds supported the increase in average interest-earning assets of $3.2 billion, or 16%, to $23.1 billion. Higher market interest rates had a favorable impact on net interest revenue by increasing asset yields, increasing the return on the investment of State Street's large volume of noninterest-bearing sources of funds. Average short-term U.S. interest rates increased as the Federal Reserve tightened monetary policy, raising the Federal funds rate from 5.50% to 6.00%, or 50 basis points, early in 1995. Later in the year, the Federal Reserve changed the direction of its monetary policy and lowered the Federal funds rate back to 5.50%. On average, while overnight rates for the year were approximately 160 basis points higher, the two-year Treasury rate rose only 22 basis points, flattening the yield curve significantly. The average prime rate for 1995 increased approximately 165 basis points from 1994. The spread between interest rates earned and paid decreased eighteen basis points to 1.21% in 1995. Because State Street is liability sensitive in the short term (interest-bearing liabilities reprice faster than interest-earning assets), the rising-rate environment, coupled with the flatter Treasury yield curve, had a negative impact on the spread earned. NET INTEREST MARGIN. Net interest margin is defined as taxable equivalent net interest revenue as a percent of average interest-earning assets. The margin declined eight basis points to 2.01% in 1995. The narrower spread between interest rates earned and paid, along with lower noninterest-bearing deposits, outweighed the benefits of asset growth. The contribution to the margin from noninterest-bearing sources was ten basis points above 1994 as a result of the investment of these funds in higher yielding assets. - ------------------------------------------------------------------------------------------------------------------------
Net Interest Margin 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------ Yield on interest-earning assets....................................................... 5.93% 4.82% 4.45% Rate on interest-bearing liabilities................................................... 4.72 3.43 2.98 ---- ---- ---- Excess of rate earned over rate paid............................................. 1.21 1.39 1.47 Contribution of noninterest-bearing sources............................................ .80 .70 .65 ---- ---- ---- Net interest margin.............................................................. 2.01% 2.09% 2.12% ==== ==== ====
PROVISION FOR LOAN LOSSES. The provision for loan losses is the amount charged to earnings during the current period to maintain the allowance for loan losses at a level that management considers appropriate, relative to the level of risk in the loan portfolio and other extensions of credit. The provision for loan losses was $8.0 million in 1995, which compares favorably with $11.6 million in 1994. Net charge-offs continued to decline and were $2.7 million, down from $7.7 million a year ago. Additional discussion of the allowance for loan losses, asset quality, and loan charge-offs and recoveries is presented in the credit risk section on page 37. OPERATING EXPENSES In 1995, operating expenses were $1,174 million, up 11%, with most of the increase supporting business growth. Particularly in the second half of 1995, State Street handled significantly greater activity, due in part to the installation of new business. Total average assets under custody increased 25% over the prior year and average daily transactions increased 20%. - -------------------------------------------------------------------------------------------------------------------
Operating Expenses Change (Dollars in millions) 1995 1994 1993 94-95 - ------------------------------------------------------------------------------------------------------------------- Salaries and employee benefits............................................ $ 650.6 $ 587.6 $492.4 11% Occupancy, net............................................................ 83.7 72.9 61.6 15 Equipment................................................................. 123.9 111.8 100.3 11 Contract services......................................................... 117.1 104.6 74.9 12 Professional services..................................................... 48.1 48.2 35.8 Advertising and sales promotion........................................... 25.8 23.4 19.0 10 Postage, forms and supplies............................................... 23.8 20.6 18.6 16 Telecommunications........................................................ 22.4 21.5 21.7 4 Other..................................................................... 78.6 67.2 74.4 17 -------- -------- ------ Total operating expenses............................................ $1,174.0 $1,057.8 $898.7 11 ======== ======== ======
Salaries and employee benefits, the largest component of expense, were $650.6 million, up 11% from 1994. This increase was due to higher salaries, incentive compensation and benefit costs. Occupancy expense increased $10.8 million, or 15%, to $83.7 million as a result of additional space. Equipment expense of $123.9 million was up 11%, due to additional computers and related information-technology equipment and software needed to support business growth and a broader product line. The increase in equipment expense was due to the global deployment of more robust applications, the addition of disk storage space, and upgrades to data center processing power. As mainframe processing power in all data centers increased through upgrades to the latest bi-polar technology-based systems, equipment expense for this area grew by only a fraction of the increased capacity. Contract services expense includes the cost of subcustodian services in 69 countries, as well as other outside services, including pricing and processing services. In 1995, contract services expense increased $12.5 million, or 12%, primarily due to mutual fund shareholder accounting costs and, secondarily, to increased subcustodian costs. Professional services expense in 1995 was $48.1 million, approximately the same as in 1994, and included acquisition-related costs, legal fees and fees incurred for other services. Advertising and sales promotion expense was $25.8 million, up 10%, due to additional advertising and an expanded sales effort. Other operating expenses include operating and processing losses, insurance expense, contributions, dues and other fees incurred in the normal course of business. In 1995, other operating expenses increased $11.4 million, or 17%. Operating and processing loss expense incurred from errors in securities processing and settlement, valuations and corporate actions increased $13.7 million from a low level in 1994. Insurance expense declined $9.5 million, mainly due to significantly lower rates on FDIC insurance beginning in the second quarter. Other costs increased supporting geographic expansion and growth. Higher than normal strategic investment spending gradually tapered to more normal levels over the course of 1995. In 1993, State Street increased its level of investment spending to expand market leadership and to position it for future growth. Investment spending is for information technology, core processing infrastructure, and product and market development. In 1993 and 1994, strategic investment spending approximated 10% of total revenue, up from a more normal level of 7% to 8%. Investment spending was approximately 9% of total revenue in 1995. INCOME TAXES Income tax expense charged to earnings was $119.4 million in 1995 and $119.7 million in 1994, and the effective tax rates were 32.6% and 35.2%, respectively. A significant portion of the reduction in the effective tax rate from 1994 to 1995 was due to three nonrecurring items. First, effective January 1, 1995, Massachusetts enacted a five-year phased-in reduction in the bank tax rate from 12.54% to 10.50% and permitted banks to apportion taxable income. State Street recorded a rebooking of deferred taxes relating to leveraged leases and other items, which lowered the 1995 effective tax rate by 1.2%. Second, State Street and other banks settled a multi-year tax dispute with Massachusetts over the taxability of interest revenue from certain Massachusetts bonds, lowering the effective rate by 1.0%. Third, nondeductible expenses associated with the IFTC pooling increased the rate by .3%. The effective tax rate without these three nonrecurring items would have been 34.5%, which is lower than the 1994 tax rate primarily due to the reduced effective state tax rate for banks in 1995. The 1996 effective tax rate is estimated to be 35.5%, up one percentage point from the adjusted 1995 rate. The increase in the effective tax rate results largely from the anticipated growth in fully-taxable revenue, partially offset by the continued phase-in of the lower state tax rate for banks. COMPARISON OF 1994 VERSUS 1993 In 1994, fully diluted earnings per share were $2.64, up 16% from $2.28 in 1993. Total revenue for 1994 was 17% higher than in 1993. New customers, and existing customers using additional services, fueled revenue gains. The increase in cross-border investing, the expansion of the mutual fund industry, and institutional investors' continued demand for information also contributed to strong revenue in 1994. Operating expenses rose 18% in 1994 against 1993, in support of business growth, as a program of higher than normal investment spending continued. LINES OF BUSINESS State Street reports on three lines of business: financial asset services, investment management and commercial lending. The results for State Street's three lines of business are derived from internal accounting systems. These systems collect revenue and expenses for each business, and allocate certain revenue, expenses, assets and liabilities. Capital is allocated using the Federal regulatory guidelines and management's judgment regarding the operational risks inherent in the businesses. The capital allocations may not be representative of the capital levels that would be required if these three lines of business were independent business units. The following information is based on management accounting practices that conform to and support the strategic objectives and management structure of State Street and are not necessarily comparable with similar information for any other banking company: - ----------------------------------------------------------------------------------------------------------------------------------
LINES OF BUSINESS Financial Investment Commercial (Taxable equivalent basis, Asset Services Management Lending Corporate dollars in millions) 1995 1994 1993 1995 1994 1993 1995 1994 1993 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------------------- Fee revenue............. $ 903.2 $ 831.5 $ 708.3 $ 178.8 $149.7 $127.5 $ 38.3 $ 41.5 $ 36.5 $ (1.2) $ (5.4) $ (6.7) Net interest revenue.... 311.2 307.5 275.7 17.4 6.1 3.7 138.3 108.6 86.1 (2.6) (5.0) (8.3) Provision for loan losses............... 1.2 1.6 0.5 6.8 10.0 10.8 ------- ------- ------- ------- ------ ------ ------- ------- ------- Total revenue........ 1,213.2 1,137.4 983.5 196.2 155.8 131.2 169.8 140.1 111.8 (3.8) (10.4) (15.0) Operating expenses...... 947.9 859.2 719.3 121.4 98.5 86.1 72.7 73.7 64.5 32.0 26.4 28.8 ------- ------- ------- ------- ------ ------ ------- ------- ------- Income before income taxes...... 265.3 278.2 264.2 74.8 57.3 45.1 97.1 66.4 47.3 (35.8) (36.8) (43.8) Income taxes............ 105.0 115.1 115.1 34.7 24.7 19.4 38.0 28.6 20.1 (23.4) (23.6) (31.2) ------- ------- ------- ------- ------ ------ ------- ------- ------- Net Income........... $ 160.3 $ 163.1 $ 149.1 $ 40.1 $ 32.6 $ 25.7 $ 59.1 $ 37.8 $ 27.2 $(12.4) $(13.2) $(12.6) ======= ======= ======= ======= ====== ====== ======= ======= ======= ====== ====== ====== Percentage contribution......... 65% 74% 79% 16% 15% 14% 24% 17% 14% (5)% (6)% (7)% Average assets.......... $23,422 $20,428 $16,664 $16 $17 $12 $ 2,744 $ 2,350 $ 2,251
FINANCIAL ASSET SERVICES. Financial asset services, which contributed 65% of State Street's net income in 1995, primarily offers custody-related services for large pools of assets, such as mutual funds and pension plans (both defined benefit and defined contribution), participant recordkeeping for defined contribution plans and corporate trusteeship. A broad array of services is provided, including accounting, custody of securities, information services and recordkeeping. Also provided are banking services, such as accepting deposits and other short-term funds, foreign exchange trading, and global cash management. Funds gathered companywide are invested in the investment securities portfolio and other interest-earning assets. Revenue is reflected in both fee revenue and net interest revenue. In 1995, net income of $160.3 million declined $2.8 million from $163.1 million in 1994. Revenue increased to $1,213.2 million from $1,137.4 million in 1994. The $75.8 million increase in total revenue was driven by providing additional services for both existing customers and new relationships, higher foreign exchange trading revenue and higher service fees. Revenue growth was restrained by less revenue from the spread earned on the investment securities portfolio, lower activity in the unclaimed property business, and a difference in currency translation on the foreign bond portfolio. The yield curve impacted financial asset services results in many ways. For example, the rapid rise in short-term interest rates early in 1995, followed by lower rates and a flat to inverted yield curve late in the year, significantly reduced the return from the investment securities portfolio. The less favorable U.S. Treasury yield curve reduced the spread between U.S. Treasury and Federal agency securities held in the investment portfolio and the securities sold under repurchase agreements used to fund those securities. The spread declined 102 basis points, from 1.26% to .24%. This less favorable spread, when applied to the 1994 volume of $3.5 billion in securities, lowered net interest revenue by $35 million. Operating expenses were $947.9 million, 10% higher than 1994, primarily to support business growth. Investment spending continued at a higher than normal rate and the operating loss expense was up from a low level in 1994. COMMERCIAL LENDING. Reported in this line of business are loans to regional middle market businesses, to both regional and national companies in selected industries, and to broker/dealers. Asset-based finance, leasing, real-estate lending and trade finance are also included. In 1995, commercial lending contributed 24% of net income, a higher percentage than in previous years. In 1995, commercial lending benefited from several factors. Interest rates were higher, loans grew, leasing revenue reflected a one-time benefit from a reduction in state tax rates, the provision for loan losses was reduced due to continued improvement in loan quality and operating expenses were slightly lower. Net income from commercial lending increased $21.3 million, or 56%. On average, short-term interest rates were 160 percentage points higher than in 1995, increasing the interest revenue earned on investing deposits and capital. On average, loans increased $394 million, or 17%, to $2.7 billion. This included a $138 million increase in leases, primarily non-U.S. leveraged leases made to reduce the corporation's effective tax rate. INVESTMENT MANAGEMENT. Investment management, which contributed 16% of State Street's net income in 1995, is comprised of the business components that manage financial assets worldwide -- both institutional and personal. State Street's institutional services include a broad array of products that focus on quantitative equity management, both passive and active, and money market funds. In 1995, net income from investment management services was $40.1 million, an increase of 23% from 1994. Revenue grew 26% due to an increase in assets under management, from both new business and asset appreciation. This was offset by a 23% increase in operating expense due to additional personnel, higher salaries and incentive compensation. CORPORATE. Corporate includes the impact of long-term debt; investment of corporate cash; tax credits from tax-advantaged financings, including writedowns of these investments in fee revenue; acquisition costs; and other corporate expenses. In 1995, these corporate items reduced net income by $12.4 million, $.8 million less than $13.2 million in 1994. FINANCIAL GOALS AND FACTORS WHICH MAY AFFECT THEM FINANCIAL GOALS. State Street's primary financial goal is sustainable real growth in earnings per share. There are two supporting goals, one for revenue and one for return on stockholders' equity. The revenue goal is to repeat in the decade of the 1990s what was accomplished in the 1980s, which was 12 1/2% real, or inflation adjusted, growth in revenue per year for the decade. The return on equity goal is an 18% return on stockholders' equity. State Street considers these to be financial goals, not projections or forward looking statements. However, if these or any other goals or expectations are perceived to be forward looking statements, they should be considered in conjunction with the factors listed below, which may materially impact State Street's ability to achieve these goals. FACTORS. The following issues and factors, among others, should be considered in evaluating the outlook for State Street's growth: o Cross-border investing. Cross-border investing by both U.S. and non-U.S. customers benefits revenue. Future revenue may increase or decrease depending upon the cross-border investment decisions made by customers or future customers. o Savings rate of individuals. State Street may benefit from increased savings of individuals if those savings are invested in mutual funds and/or defined contribution plans. o Size and value of worldwide financial markets. As worldwide financial markets increase or decrease in size, State Street's opportunity to invest and/or service financial assets changes. Since a portion of State Street's fees are based on the value of assets under custody and management, the fluctuations in worldwide securities market valuations affect revenue. o Dynamics of markets served. Changes in the markets served can affect revenue, including the growth rate of U.S. mutual funds, the pace of debt issuance, and mergers, acquisitions and consolidations among customers. o Interest rates. Market interest rate levels, the direction of interest rate changes and spreads affect both net interest revenue and fiduciary compensation from securities lending. All else being equal, State Street benefits from higher rather than lower interest rates because it can invest its non-interest bearing deposits and equity in higher interest-earning assets. As discussed on page 32, it also benefits from falling interest rates. Wider market interest rate spreads enable State Street to earn more net interest revenue from its deposits and other funding and from fiduciary compensation generated by securities lending. o 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/or investment management services. o Pricing/competition. Future prices the company is able to obtain for its products may decrease from current levels depending upon the market and cost factors. Substitute products could render State Street's products less desirable or State Street could produce products on which it has increased pricing power. o Pace of new business. The pace at which existing and new customers use new services will affect future revenue. o Business mix. Changes in business mix, including the mix of U.S. and non-U.S. business, will affect earnings growth rates. o Rate of technological change. Technological change creates opportunities for product differentiation and reduced costs as well as the possibility of increased expenses. Based on its evaluation of these factors, management is optimistic about the company's long-term prospects. BALANCE SHEET REVIEW State Street manages its balance sheet to support the transaction and short-term investment needs of the financial asset services business while maximizing net interest revenue. The balance sheet composition resulting from State Street's distinctive business mix affects the approach to managing interest rate sensitivity, liquidity and credit risk. LIABILITIES Growth in State Street's balance sheet is liability-driven. Increased volume of interest-bearing liabilities, stockholders' equity and other noninterest-bearing sources fund the growth in interest-earning assets. - ----------------------------------------------------------------------------------------------------------------------
SOURCES OF FUNDS Average Volume Average Rate (Dollars in millions) 1995 1994 1993 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------- Interest-bearing deposits: Savings.......................................... $ 1,913 $ 1,992 $ 2,253 4.45% 2.85% 2.45% Time............................................. 131 172 234 5.47 4.52 5.24 Foreign.......................................... 8,470 7,392 4,954 3.82 2.93 2.95 ------- ------- ------- Total interest-bearing deposits............... 10,514 9,556 7,441 3.96 2.93 2.87 Federal funds purchased............................. 504 411 741 5.89 3.90 2.84 Securities sold under repurchase agreements......... 7,080 4,958 4,181 5.65 4.07 2.90 Other short-term borrowings......................... 761 563 216 5.32 4.40 3.78 Notes payable....................................... 214 258 511 5.73 4.64 3.90 Long-term debt...................................... 127 128 122 6.71 6.73 8.19 ------- ------- ------- Total interest-bearing liabilities............ 19,200 15,874 13,212 4.72 3.43 2.98 Other noninterest-bearing sources................... 2,437 2,769 2,548 Stockholders' equity................................ 1,483 1,284 1,125 ------- ------- ------- Total sources................................. $23,120 $19,927 $16,885 ======= ======= =======
Average interest-bearing liabilities increased $3.3 billion, or 21%, in 1995. Securities sold under repurchase agreements increased $2.1 billion, or 43%, reflecting short-term investments by customers. Foreign deposits increased $1.1 billion, or 15%, of which $.8 billion reflects additional transaction account balances. Other short-term borrowings increased $198 million, while notes payable declined $44 million from 1994. Noninterest-bearing deposits declined 12%, mainly due to lower deposit balances from mutual funds and corporate trust customers. Stockholders' equity increased 15% from 1994. ASSETS Average interest-earning assets increased $3.2 billion, or 16%, funded by additional customer deposits and other liabilities. State Street's assets are primarily comprised of money market assets and investment securities, which are generally more marketable and have less credit risk than loans. - ----------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS Average Volume Average Rate (Dollars in millions) 1995 1994 1993 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------- Interest-bearing deposits with banks................ $ 5,466 $ 5,183 $ 5,022 5.25% 4.04% 4.01% Securities purchased under resale agreements and securities borrowed.......................... 5,569 3,102 3,255 5.91 4.26 3.14 Federal funds sold.................................. 475 537 534 5.97 4.45 3.03 Trading account assets.............................. 412 532 416 5.13 4.90 4.02 Investment securities: U.S. Treasury and Federal agencies............... 4,139 3,455 2,181 5.89 5.33 5.72 State and political subdivisions................. 1,183 1,120 732 5.96 5.09 5.43 Other investments................................ 2,212 2,597 2,169 6.05 5.35 5.43 ------- ------- ------- Total investment securities................... 7,534 7,172 5,082 5.95 5.30 5.55 Loans............................................... 3,664 3,401 2,576 7.04 5.58 5.14 ------- ------- ------- Total interest-earning assets................. $23,120 $19,927 $16,885 5.93 4.82 4.45 ======= ======= =======
Growth occurred primarily in securities purchased under resale agreements, which increased $2.5 billion, or 80%, from 1994. These short-term assets are fully collateralized by U.S. Treasury and Federal agency securities and had an average maturity of five days at year end. These were purchased to accommodate customers' needs for securities sold under repurchase agreements as well as for short-term investments. The interest rate environment, particularly the flatter U.S. Treasury yield curve, made short-term investments relatively more attractive compared to the yields on longer-maturity instruments. Interest-bearing deposits with banks are short-term instruments, primarily Eurocurrency placements, invested with major U.S. and non-U.S. banks. As of December 31, 1995, the average maturity of the Eurocurrency placements was 38 days. On average in 1995, the investment securities portfolio increased $362 million. However, at year-end 1995 the portfolio assets were 27% less than at year-end 1994. State Street classifies its investment securities in two categories, held to maturity and available for sale. The held-to-maturity portfolio is used to invest depositors' funds, to provide asset diversity and to stabilize revenue. The available-for-sale portfolio is managed for total return. During the fourth quarter of 1995, State Street used a window available in accounting rules to reclassify $3.8 billion of investment securities from held to maturity to available for sale. This gives State Street more flexibility to manage its securities positions. The held-to-maturity portfolio, which is carried at amortized cost, is comprised of U.S. Treasury and Federal agency securities. At December 31, 1995, the total $824 million portfolio of held-to-maturity securities had net unrealized appreciation of $4.7 million, and the duration was 11 months. The available-for-sale portfolio is comprised of securities acquired with the intent to hold for an indefinite period of time, not necessarily until final maturity. At December 31, 1995, this $5.5 billion portfolio was comprised of U.S. Treasury and Federal agency notes, asset-backed securities, bonds and notes of state and political subdivisions, and foreign bonds. The expected duration of the available-for-sale portfolio was 18 months. State Street invests in asset-backed securities, including collateralized mortgage obligations, for yield enhancement and earnings stabilization. The collateralized mortgage obligations typically have limited variability in the timing of cash flows and provide protection from undue prepayment and extension risk. Asset-backed securities are highly rated; 96% were AAA as of December 31, 1995. Available-for-sale securities are carried at market value. At December 31, 1995, the market value of these securities was $21.1 million higher than cost. In response to declining rates and in expectation of a flattening yield curve, management sold securities for which the appreciation exceeded the projected net interest spread over the remaining lives of the securities. Due to the flattening and inversion of the U.S. Treasury yield curve at various times in the latter half of 1995, buying opportunities were limited. In order to maintain customer liabilities at positive spreads, much of the proceeds of securities sold were invested in securities purchased under resale agreements rather than in U.S. Treasury securities. Investments in shorter-term U.S. agency notes increased by $318 million, and foreign bonds were increased by $140 million. At year-end 1995, loans comprised 15% of State Street's assets, compared with approximately 60% for other banking companies of comparable size. Approximately 30% of the loan portfolio supports the short-term needs of financial asset services customers and securities brokers in conjunction with their trading and settlement activity. These are generally short-term, usually overnight, and are structured to have relatively low credit risk. Average loans increased by $263 million, or 8%, with growth occurring in commercial loans and in lease financing. INTEREST RATE SENSITIVITY MANAGEMENT The objective of interest rate sensitivity management is to provide sustainable and stable net interest revenue under various economic environments and to protect asset values from adverse effects of changes in interest rates. State Street manages the structure of interest-earning assets and interest-bearing liabilities to meet revenue goals by adjusting the mix, yields and maturity, or repricing characteristics, based on changing market conditions. Interest rate risk arises from differences in the timing of when assets and liabilities are repriced. Depending on the degree of difference, changes in interest rates and yield curves can result in an increase or decrease in net interest revenue and affect the valuation of assets and liabilities. Under policies approved by the Board of Directors, State Street seeks to limit interest rate risk while using timing differences to manage net interest revenue. State Street uses three tools for measuring interest rate risk: simulation, duration and gap analysis. Simulation models capture the dynamics of interest rate movements, differences within a time frame, changes in relationships among various market rates, certain assumed lagged movements in money market rates and expected changes in volumes. Results from the simulation models are evaluated as part of the forecasting, long-range planning and budget processes to evaluate the potential range of net interest revenue under "most likely" and alternative interest rate scenarios. State Street also measures duration and present value of the assets and liabilities and evaluates the effect of changes in interest rates on the economic value of equity. The third measure of interest rate risk, as shown below, is the difference in asset and liability repricing on a cumulative basis within a specified time frame. State Street monitors the three-month, six-month, one-year and two-year cumulative net interest-earning assets, or gaps. - ----------------------------------------------------------------------------------------------------------------------
INTEREST SENSITIVITY POSITION AT DECEMBER 31, 1995 Interest Sensitivity Period in Months ---------------------------------------------------------------- (Dollars in millions) Balance 0-3 4-6 7-12 13-24 over 24 - ---------------------------------------------------------------------------------------------------------------------- Interest-Earning Assets: Interest-bearing deposits with banks................ $ 5,975 $ 5,343 $ 535 $ 97 $ $ Other money market assets (1)....................... 4,596 4,596 Investment securities: Held to maturity................................. 824 188 165 45 396 30 Available for sale............................... 5,535 808 775 1,313 1,095 1,544 Loans............................................... 3,468 2,541 137 34 29 727 ------- ------- ----- ------ ------ ------ Total interest-earning assets.................... 20,398 13,476 1,612 1,489 1,520 2,301 ------- ------- ----- ------ ------ ------ Interest-Bearing Liabilities: Domestic deposits................................... 2,151 1,963 14 14 2 158 Foreign deposits.................................... 9,414 9,383 24 7 Federal funds purchased and repurchase agreements... 5,588 5,587 1 Other interest-bearing liabilities.................. 745 570 48 127 ------- ------- ----- ------ ------ ------ Total interest-bearing liabilities............... 17,898 17,503 39 21 50 285 ------- ------- ----- ------ ------ ------ (4,027) 1,573 1,468 1,470 2,016 Interest rate swaps................................. 209 8 (25) (1) (191) ------- ----- ------ ------ ------ Interest rate sensitivity position..................... (3,818) 1,581 1,443 1,469 1,825 Cumulative interest rate sensitivity position.......... (3,818) (2,237) (794) 675 2,500 Cumulative gap percentage (2).......................... (17)% (10)% (3)% 3% 11% (1) Includes adjustments to normalize the one-day position and for earnings credits (2) Cumulative interest rate sensitivity position as a percent of December average earning assets
The table shows State Street's year-end interest rate sensitivity position for various assets and liabilities, measured by repricing date or maturity date, whichever is earlier. Non-maturity items, such as asset-backed securities and deposits, are reported in time periods based on management's evaluations of prepayments and repricing. The table reflects an adjustment made to include the effect of rate changes on noninterest-bearing deposits which earn balance credits. As shown, State Street was liability sensitive as interest-bearing liabilities were repricing faster than interest-earning assets. If all other variables remained constant, in the short term, falling interest rates would lead to increased net interest revenue; rising rates would lead to decreased net interest revenue. However, interest rate sensitivity is only one of several factors determining net interest revenue. Rate levels, balance sheet growth and mix, and rate spreads are also important determinants. State Street maintains flexibility in its balance sheet to adjust its interest rate sensitivity. Since interest-bearing sources of funds are predominantly short-term, State Street maintains a generally short-term structure for its interest-earning assets, including money market assets, investments and loans. Off-balance sheet financial instruments are used as part of overall asset and liability management. Financial futures and interest rate swaps are used modestly to augment State Street's management of interest rate exposure within policy limits. At December 31, 1995, $217 million of interest rate swaps reduced short-term liability sensitivity. LIQUIDITY The primary objective of State Street's liquidity management is to ensure that State Street has sufficient funds to replace maturing liabilities, accommodate the transaction and cash management requirements of its customers, meet loan commitments, and accommodate other corporate needs. Liquidity is provided by State Street's access to global market sources of funding and its ability to gather additional deposits, and from maturing short-term assets, the sale of available-for-sale securities and payments of loans. State Street manages its assets and liabilities to maintain a high level of liquidity. It has an extensive and diverse funding base inside and outside the United States. Nearly all of its funding comes from customers who have other relationships with State Street, particularly those using custody services worldwide. Deposits are available through both domestic and international treasury centers, providing a cost-effective, multicurrency, geographically-diverse source of funding. Significant funding is also provided from institutional customers' demand for repurchase agreements for their short-term investment needs. State Street maintains other funding alternatives, ensuring access to additional sources of funds if needed. Relationships are maintained with a variety of investors, for a range of financial instruments, in various markets and time zones. State Street maintains a large portfolio of liquid assets. At December 31, 1995, the portfolio included $6.0 billion of interest-bearing deposits with banks, $5.4 billion of securities purchased under resale agreements and securities borrowed, and $348 million of Federal funds sold. Of the total $11.7 billion in liquid assets, $7.5 billion mature within one week, and nearly all mature within six months. Although not relied on for daily liquidity needs, the $5.5 billion available-for-sale portfolio of marketable securities provides a significant secondary source of liquidity. State Street maintains strong liquidity ratios. When liquidity is measured by the ratio of liquid assets to total assets, State Street ranks among the highest of U.S. banking companies. Liquid assets consist of cash and due from banks, interest-bearing deposits with banks, Federal funds sold, securities purchased under resale agreements and securities borrowed, trading account assets and investment securities. At December 31, 1995, State Street's liquid assets were 78% of total assets. State Street's high ratings as a corporation and depository enhance its liquidity. Senior debt is rated AA- by Standard & Poor's, A1 by Moody's Investor Services and AA by IBCA, Inc. Depending upon the rating service, six or fewer of the largest 100 bank holding companies in the United States have higher ratings. State Street Bank's long-term certificate of deposit ratings are AA by Standard & Poor's, Aa2 by Moody's Investor Services and AA+ by IBCA, Inc. These ratings, as well as strong capital ratios, enhance State Street's liquidity by making its liabilities attractive to a large number of investors worldwide. The Consolidated Statements of Cash Flows on page 42 provide additional information. FAIR VALUE OF FINANCIAL INSTRUMENTS The short-maturity structure of State Street's assets and liabilities results in the fair value of its financial instruments equating to or closely approximating its balance sheet value, with the exception of the held-to-maturity portfolio, which had appreciation of $4.7 million as of December 31, 1995. See Footnote S to the Financial Statements, page 56, for a further discussion. CAPITAL STRENGTH State Street maintains strong capital levels to support continued growth and to accommodate customer needs. State Street continues to generate capital internally at a high rate. On December 31, 1995, stockholders' equity was $1.6 billion, compared with $760 million on December 31, 1990, a 15.9% compound annual growth rate. During 1995, stockholders' equity increased $250 million. This increase was primarily attributable to net income of $247 million and an increase in the net unrealized gains on the available-for-sale investment securities portfolio of $69 million. These increases were partially offset by dividends of $56 million and treasury stock purchases of $17 million. The Board of Directors has authorized the repurchase of up to three million shares of State Street's common stock. Shares purchased under the authorization will be used for employee benefit plans and for general corporate purposes. During the second half of 1995, the stock purchase program was initiated and 416,200 shares of State Street's common stock were purchased for employee benefit plans at an average cost of $41 per share. The Federal Reserve Board, State Street's primary regulator, has established risk-based capital guidelines that require minimum ratios of capital to risk-weighted assets and certain off-balance sheet credit exposures. The Federal Reserve Board also maintains a leverage ratio guideline as a measure of capital to total average balance sheet assets. - ---------------------------------------------------------------------------------------------------------------------
REGULATORY CAPITAL AT DECEMBER 31 Minimum Regulatory (Dollars in millions) 1995 1994 Guidelines - --------------------------------------------------------------------------------------------------------------------- Risk-based ratios: Tier 1 capital................................................................... 14.0% 13.6% 4% Total capital.................................................................... 14.5 14.2 8 Leverage ratio...................................................................... 5.6 5.6 3 Tier 1 capital...................................................................... $ 1,507 $1,354 Total capital....................................................................... 1,563 1,408 Risk-adjusted assets: On-balance sheet assets.......................................................... $ 8,409 $7,993 Off-balance sheet assets......................................................... 2,339 1,942 -------- ------ Total risk-adjusted assets....................................................... $10,748 $9,935 ======= ======
State Street has developed internal capital-adequacy policies that emphasize risk exposure rather than asset levels. These policies place primary importance on the risk-based guidelines, particularly the Tier 1 risk-based capital ratio. This emphasis is appropriate to State Street's balance sheet structure, which has a high degree of liquidity and low credit risk. At year-end 1995, State Street's Tier 1 capital ratio of 14.0% significantly exceeded the regulatory guideline of 4% and was among the strongest for large U.S. banking companies. The improvement in State Street's risk-based ratios during 1995 resulted from higher levels of capital, which grew more rapidly than risk-weighted assets. Bank regulators have adopted five capital categories based on capital ratios and other factors, which are applicable to banks for certain regulatory supervisory purposes. These categories range from "well capitalized" to "critically undercapitalized." The "well capitalized" category requires a bank to maintain a minimum Tier 1 risk-based ratio of 6%, a minimum total risk-based capital ratio of 10% and a minimum leverage ratio of 5%. State Street has internal guidelines which meet or exceed the minimum standard for the "well capitalized" category and it actively manages its level of assets and capital to meet these guidelines. At December 31, 1995, State Street Bank had a Tier 1 risk-based capital ratio of 13.1%, a total risk-based capital ratio of 13.4% and a leverage ratio of 5.2%. DIVIDENDS AND COMMON STOCK State Street increased the quarterly dividend to stockholders twice during 1995, continuing the pattern of dividend increases that began in 1978. At year-end 1995, the dividend rate was 12.5% higher than at year-end 1994. Since 1990, dividends per share have increased at an annual rate of 15%. State Street's policy is to increase dividends at a rate that is consistent with long-term earnings growth and that will permit levels of internal capital generation sufficient to allow for the full development of strategic business opportunities. The dividend payout ratio was 23% for 1995. There were 5,773 stockholders of record at year-end 1995. - -------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND COMMON STOCK MARKET PRICE Market Price ------------------------- ----------------------------- DIVIDENDS END OF Dividends End of DECLARED LOW HIGH PERIOD Declared Low High Period - ------------------------------------------------------------------------------------------------------------------------- 1995 1994 FIRST................ $.16 $28 $34 1/8 $31 7/8 First............... $.14 $35 1/8 $39 1/8 $36 SECOND............... .17 $30 3/8 $37 5/8 $36 7/8 Second.............. $.15 $34 3/8 $43 1/8 $38 5/8 THIRD................ .17 $35 1/8 $41 1/2 $40 Third............... $.15 $36 $41 $36 1/2 FOURTH............... .18 $38 5/8 $46 1/4 $45 Fourth.............. $.16 $27 5/8 $37 1/4 $28 5/8
RISK MANAGEMENT In providing financial asset services globally, certain inherent risks must be managed and controlled. These include counterparty credit risk, fiduciary risk, operations and settlement risk, and market risk. Risk management is an integral part of State Street's business activities and is centrally organized with close ties to the business units in order to identify and manage risks effectively. This structure allows for corporate risk management across the business areas while individual line areas remain responsible for risk management in their units. Continuing a trend of recent years, risk-management resources are increasingly devoted to financial asset services and investment management. Emphasis in risk management is placed on establishing specific authorization levels and limits. Exposure levels are reviewed and modified as required by changing conditions. Counterparties are subject to a rigorous credit approval process that covers traditional credit facilities, foreign exchange, placements, credit-enhancement services, securities lending and securities-clearing facilities. Concentration is managed in terms of business-risk concentration, including specific industry lending concentrations and country limits, as well as limits on individual counterparties. In managing country risk, State Street considers a broad variety of issues and risks inherent in doing business outside the United States, including issues related to credit quality and asset concentration. Consideration is also given to transfer risk, which arises from the possible inability of a counterparty or borrower to repay an obligation because of the inconvertibility of its currency. Fiduciary risk is the risk of financial loss as a consequence of breaching a fiduciary duty to a customer. Business units have the primary responsibility to operate within the rules and regulations applicable to their businesses, as well as corporate guidelines, and are responsible for establishing unit specific procedures to do so. Additionally, the corporate fiduciary review committee and compliance committee work with the business units to oversee adherence to corporate standards. Since State Street is a large servicer and manager of financial assets on a global scale, management of operations and settlement risk is an inherent part of the management process throughout the corporation. This focuses on payment-system risk management, overdraft monitoring and control, and global securities clearing and settlement. In addition to specific authorization levels and limits, operating risk is also controlled through extensive automation, operating procedures and insurance. Market risk arises from price changes in various markets. Market risk from foreign exchange and trading activities is monitored and controlled through established limits on positions and aggregate limits based on estimates of potential loss of earnings under assumptions about changes in market conditions. State Street acts as an agent to lend customer-owned securities to broker/dealers and banks. State Street is not a principal in these transactions and, therefore, the assets and liabilities are not reflected on its balance sheet. Potential exposure to each borrower is approved and monitored through State Street's credit risk approval and management process. Collateral in the form of cash, securities, or letters of credit is received to secure the borrower's promise to return these securities. Securities are marked to market and compared to the value of collateral daily. Investment of customer cash collateral is managed by State Street Global Advisors in compliance with approved investment parameters. CREDIT RISK Credit risk results from the possibility that a loss may occur if a counterparty becomes unable to meet the terms of a contract. State Street has policies and procedures to monitor and manage all aspects of credit risk. These include a comprehensive credit-review and approval process that involves the assignment of risk ratings to all loans and off-balance sheet credit exposures. During 1995, all measures of credit quality continued to improve. It is State Street's policy to place a loan on non-accrual status when either principal or interest becomes 60 days past due. Loans are returned to accrual status only when interest and principal payments are brought current and future payments are considered to be assured. In 1995, loans placed on non-accrual status were more than offset by charge-offs, payments and the return to accrual status of several loans. At December 31, 1995, total non-performing assets were $18.7 million, an $8.7 million decrease from year-end 1994. Non-performing assets included $15.5 million of non-performing loans, which was less than one-half of 1% of total loans, and $3.2 million of other real estate owned. At December 31, 1995, the coverage ratio (allowance for loan losses to non-performing loans) was 4.10, an improvement from 2.53 at December 31, 1994. In 1995, net charge-offs declined to $2.7 million from $7.7 million in 1994. Net charge-offs as a percentage of average loans were .07%, compared with .23% for 1994. The allowance for loan losses is available to cover potential losses from current credit exposure in the loan portfolio and certain off-balance sheet commitments and is increased by the provision for loan losses, which is a charge to current earnings. The appropriate level of the allowance is determined by a thorough analysis of credit risk and other factors as discussed in Footnote A to the Financial Statements, page 45. At December 31, 1995, the allowance for loan losses was $63.5 million, or 1.59% of loans. This compares with an allowance of $58.2 million, or 1.80% of loans, a year ago. The decline in the ratio reflects improvement in measures of credit quality, discussed above, and a continuing satisfactory outlook for general economic conditions and its effect on borrowers. The following table shows the provision for loan losses and credit experience: - --------------------------------------------------------------------------------------------------------------------- CREDIT EXPERIENCE (Dollars in millions) 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------- Provision for loan losses............................................................. $ 8.0 $11.6 $11.3 Charge-offs........................................................................... 6.7 10.5 18.5 Recoveries............................................................................ 4.0 2.8 2.2 ------ ----- ----- Net loan charge-offs............................................................ 2.7 7.7 16.3 Allowance of subsidiary purchased..................................................... 1.4 Allowance for loan losses, year end................................................... 63.5 58.2 54.3 Non-performing loans.................................................................. 15.5 23.0 26.8 Other real estate owned............................................................... 3.2 4.4 11.1 Ratios: Allowance to ending loans.......................................................... 1.59% 1.80% 2.03% Net charge-offs to average loans................................................... .07 .23 .63 Non-performing loans to total loans................................................ .39 .71 1.00
FOREIGN EXCHANGE AND DERIVATIVE FINANCIAL INSTRUMENTS State Street uses foreign exchange and a variety of financial derivative instruments to support customers' needs, conduct trading activities, and manage interest rate and currency risk. These activities either generate trading revenue or enhance the stability of net interest revenue. In addition, State Street provides services related to derivative instruments in its role as both a manager and servicer of financial assets. State Street's customers use derivatives to manage the financial risks associated with their investment goals and business activities. With the growth of cross-border investing, State Street's customers have an increasing need for foreign exchange forward contracts to convert currency for international investment and to manage the currency risk in an international investment portfolio. As an active participant in the foreign exchange markets, State Street provides foreign exchange contracts and over-the-counter options in support of these customer needs. As part of trading activities, State Street also assumes market positions in both the foreign exchange and interest rate markets using financial derivatives -- primarily forward foreign exchange contracts, foreign exchange and interest rate options, and interest rate swaps. As of December 31, 1995, the notional amount of these instruments was $58.4 billion, of which $55.0 billion was foreign exchange forward contracts. Long and short foreign exchange forward positions are closely-matched to minimize currency and interest rate risk. In order to estimate changes in the value of the outstanding contracts, all forward foreign exchange contracts are valued daily at current market rates. State Street uses various derivatives to minimize the interest rate and foreign exchange risk associated with balance sheet and global business activities. As of year-end 1995, the notional amount of these derivatives was $267 million. Trading activities involving both foreign exchange and interest rate derivatives are managed using earnings at risk measures and trading limits as established by risk management policies. Interest rate and foreign exchange derivatives used as part of the asset and liability management process are subjected to the same credit and interest rate risk analyses applied to financial instruments carried on the balance sheet. As a manager of financial assets for others, State Street uses derivative financial instruments to hedge against market risk, adjust portfolio duration and enable efficient portfolio construction. These activities are undertaken in accordance with investment guidelines supplied by, or disclosed to, State Street's customers. As a servicer of financial assets, State Street acts as trustee, custodian and/or administrator for its customers' investment funds, certain of which may use derivative instruments in their investment strategies. These activities are part of the normal responsibilities of State Street as a service provider and are discharged in accordance with customer service contracts. Further discussion of derivatives is included in Footnote R to the Financial Statements, page 54. NEW ACCOUNTING DEVELOPMENTS Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," and SFAS No. 122, "Accounting for Mortgage Servicing Rights," are effective for fiscal years beginning after December 15, 1995. State Street plans to adopt these two new statements in 1996, neither of which will have a material impact to the financial statements. SFAS No. 123, "Accounting for Stock Issued to Employees," was issued in 1995. State Street plans to continue to measure compensation cost for stock-based employee compensation plans using the intrinsic-value-based method of accounting prescribed by APB Opinion No. 25. State Street will adopt the new disclosure requirements of this statement in 1996. EX-13.3 15 ANNUAL REPORT TO SECURITY HOLDERS EXHIBIT 13.3 To Our STOCKHOLDERS IN 1995, WE SHARPENED STATE STREET'S FOCUS and strengthened our franchise, confirming our commitment to be the leading full service provider in our selected markets. Our initiatives this year, building on the accomplishments of the past, have us looking forward enthusiastically to a future of continued growth and achievement. MARSHALL N. CARTER Our strategy for growth is based Chairman and Chief Executive Officer on the distinct strengths of the powerful, global State Street ------------------------------------ franchise. We are the largest servicer [Photo of Marshall N. Carter] of U.S. mutual funds, the largest master trustee/master custodian of U.S. pension plans, the third-largest U.S. investment manager and the third-largest manager of defined contribution plan assets because customers recognize and ----------------------------------- value our unique service capability and technological superiority. From basic custody to the most sophisticated information and analysis, we provide the services they need, in any country and any currency. In every aspect of our business, our broad customer base is a vital element of our franchise. Their growth, in both size and sophistication, and the resultant need for additional and more complex services, is key to our growth. Our opportunities for internal growth are substantial and global. Our strategies for creating stockholder value draw on the strengths of our franchise. We continue to add and enhance products and services, provide additional services to existing customers, expand globally, and improve our process and infrastructure. The commentary following this letter discusses these strategies in detail. Our business tactics maintain State Street's focus on servicing and managing financial assets. We have noted the merger and acquisition activity of many of our competitors, which has done little to alter the competitive landscape in our core businesses. Given State Street's excellent prospects for internal growth, we will consider an acquisition only if it enables us to add new products or services that enhance our established capabilities, expand our geographic reach, or increase, very selectively, market share, without diluting earnings per share over the long term. 1995 was a year of considerable challenge for State Street. After a slow start, we gained momentum as the year progressed, both in financial results and in the marketplace. A difficult environment prevailed during the first quarter, and revenue fell short of our plan. However, even with several investment initiatives under way, we held expenses below plan. Our productivity improvements enabled us to accommodate significant growth in all businesses without growth in personnel. As the year progressed, our customers used more services and we increased penetration of markets around the world, increasing revenue. Our primary financial objective continues to be sustainable real growth in earnings per share. In 1995, we achieved earnings per share growth of 12%. We have two supporting goals as well, which we discuss further in the Financial Review. Our revenue goal for the decade is 12.5% real growth per year. In 1995, revenue grew 11%, with growth accelerating as the year progressed. Our second supporting goal is an 18% return on equity. For 1995, return on stockholders' equity was 16.7%. In the second half of 1995, we won substantial new business from both - ------------------------------------- existing and new customers, gaining [Photo of David A. Spina] market share and adding to revenue for 1996 and beyond. We believe this continuing success in the market is in part a result of our investment spending, which has enabled us to - ------------------------------------- improve our products and services, DAVID A. SPINA augment capacity, and expand President and Chief Operating Officer geographically. We purchased 416,000 shares of State Street stock on the open market in the second half of 1995, and at year end had authorization from the Board of Directors to buy an additional 2.6 million shares. We continued to increase our dividend semiannually. Dividends per share have grown 16% per year over the last ten years. In December 1995, we established a new operating unit for custody and related services. David A. Spina was promoted to president and chief operating officer of the corporation, heading up the new unit, which concentrates a broad range of resources under his leadership. The new unit will allow us to leverage the many opportunities we see worldwide, and to do so quickly. Today's State Street is a growing global financial services company, working with customers around the world to provide the highest quality service and management for their financial assets. State Street's success is rooted in our ability to provide customers with a full range of integrated financial asset services, from cash management to portfolio analytics; from custody and accounting to active emerging markets investment strategies. As the additional business we continue to attract from both new and existing customers attests, State Street is a leader in the field not by virtue of our size but because of our ability to interweave all the elements, products and services, which the business environment of today and tomorrow demands. Our decision to focus our expertise on technology and the service aspects of finance has offered clear advantages for State Street's stockholders. For nearly two decades, through economic cycles and bull and bear markets, our revenue, over 70% of which is now from fees, has grown steadily. Like a technology or business service company, we view revenue growth as the primary driver of long-term earnings per share growth. State Street remains committed to investing in the future. We will not risk our leadership position in the rapidly changing technological environment of the 1990s. We learn every day from our customers how much they need and appreciate the speed and flexibility with which we meet their ever-increasing, and increasingly complex, requirements. We are confident that State Street is ideally positioned to extend its record of consistent earnings per share growth in the years ahead. We continue to improve our position as an established industry leader by remaining focused on our core businesses while adapting continuously to help set the pace for the markets we serve. We are proud to stand out in the financial services field as a distinct and different corporation. This distinction is what makes us so valuable to our stockholders and our customers. In 1996, we expect to see revenue growth from the business won in the second half of 1995, and to benefit from an intensified focus on gaining more operating leverage in the custody business. We will continue to build on our customer relationships, redefine our market, and expand our distribution channels, and we will establish new business relationships by leading with a number of services, not just custody and investment management. Through 1996 and beyond we will continue to capitalize on the growing global demand for our expertise by implementing our strategies to create stockholder value. None of our substantial achievements, past, present, or future, would be possible without the talent and dedication of our more than 11,000 professionals around the world. They make State Street the powerful institution that has provided its stockholders with a total return of 18%, compounded annually, on their investment over the last ten years. We look forward to working with these professionals to enhance further State Street's value to stockholders, our employees, and to the world in which we live. /s/ MARSHALL N. CARTER /s/ DAVID A. SPINA MARSHALL N. CARTER DAVID A. SPINA Chairman and Chief Executive Officer President and Chief Operating Officer EX-13.4 16 ANNUAL REPORT TO SECURITY HOLDERS EXHIBIT 13.4 CONSOLIDATED STATEMENT OF INCOME -------------------------------- STATE STREET BOSTON CORPORATION - ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------- INTEREST REVENUE Deposits with banks ........................................................ $ 286,751 $ 209,280 $ 201,455 Investment securities: U.S. Treasury and Federal agencies ...................................... 243,936 184,253 124,699 State and political subdivisions (exempt from Federal tax) .............. 53,096 41,521 26,727 Other investments ....................................................... 132,915 137,876 116,238 Loans ...................................................................... 242,015 183,333 127,651 Securities purchased under resale agreements, securities borrowed and Federal funds sold .................................................. 357,477 156,003 118,518 Trading account assets ..................................................... 20,429 23,978 14,340 ----------- ---------- ----------- Total interest revenue ............................................... 1,336,619 936,244 729,628 INTEREST EXPENSE Deposits ................................................................... 416,047 280,687 213,890 Other borrowings ........................................................... 482,613 254,780 170,176 Long-term debt ............................................................. 8,525 8,625 10,022 ----------- ---------- ----------- Total interest expense ............................................... 907,185 544,092 394,088 ----------- ---------- ----------- Net interest revenue ................................................. 429,434 392,152 335,540 Provision for loan losses - Note D ......................................... 8,000 11,569 11,320 ----------- ---------- ----------- Net interest revenue after provision for loan losses ................. 421,434 380,583 324,220 FEE REVENUE Fiduciary compensation ..................................................... 823,806 749,802 656,956 Other - Note K ............................................................. 295,266 267,527 208,616 ----------- ---------- ----------- TOTAL FEE REVENUE .................................................... 1,119,072 1,017,329 865,572 Revenue Before Operating Expenses .................................... 1,540,506 1,397,912 1,189,792 Operating Expenses Salaries and employee benefits - Note N .................................... 650,604 587,652 492,365 Occupancy, net ............................................................. 83,686 72,908 61,676 Equipment .................................................................. 123,901 111,759 100,295 Other - Note L ............................................................. 315,825 285,459 244,365 ----------- ---------- ----------- Total operating expenses ............................................. 1,174,016 1,057,778 898,701 ----------- ---------- ----------- Income before income taxes ........................................... 366,490 340,134 291,091 Income taxes - Note O ...................................................... 119,381 119,791 101,705 ----------- ---------- ----------- NET INCOME ........................................................... $ 247,109 $ 220,343 $ 189,386 =========== =========== ========== EARNINGS PER SHARE Primary ................................................................. $2.98 $2.66 $2.30 Fully diluted ........................................................... 2.95 2.64 2.28 AVERAGE SHARES OUTSTANDING (in thousands) Primary ................................................................. 83,058 82,823 82,165 Fully diluted ........................................................... 83,843 83,454 83,149 The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENT OF CONDITION ----------------------------------- STATE STREET BOSTON CORPORATION - -----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) December 31, 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks - Note Q .................................................... $ 1,421,941 $ 1,097,563 Interest-bearing deposits with banks ................................................ 5,975,178 4,847,069 Securities purchased under resale agreements and securities borrowed - Note F ....... 5,406,619 1,886,759 Federal funds sold .................................................................. 347,500 768,615 Trading account assets .............................................................. 503,839 527,550 Investment securities - Notes C and F: Held to maturity ................................................................. 824,399 5,187,270 Available for sale ............................................................... 5,535,364 3,482,309 ----------- ------------ Total investment securities ................................................... 6,359,763 8,669,579 Loans - Note D ...................................................................... 3,986,142 3,233,221 Allowance for loan losses ........................................................... (63,491) (58,184) ----------- ------------ Net loans ..................................................................... 3,922,651 3,175,037 Premises and equipment - Notes E and H .............................................. 467,588 476,319 Customers' acceptance liability ..................................................... 57,472 55,358 Accrued income receivable ........................................................... 392,074 363,585 Other assets ........................................................................ 930,562 679,509 ----------- ------------ TOTAL ASSETS .................................................................. $25,785,187 $22,546,943 =========== =========== LIABILITIES Deposits: Noninterest-bearing .............................................................. $ 5,082,064 $ 4,781,917 Interest-bearing: Domestic ....................................................................... 2,150,697 1,895,209 Foreign ........................................................................ 9,414,458 7,920,932 ----------- ------------ Total deposits ................................................................ 16,647,219 14,598,058 Federal funds purchased ............................................................. 467,305 113,143 Securities sold under repurchase agreements - Note F ................................ 5,120,950 4,798,261 Other short-term borrowings ......................................................... 443,203 649,052 Notes payable - Note G .............................................................. 175,218 Acceptances outstanding ............................................................. 57,387 55,621 Accrued taxes and other expenses - Note O ........................................... 562,304 418,840 Other liabilities ................................................................... 597,501 449,283 Long-term debt - Note H ............................................................. 126,576 127,549 ----------- ------------ TOTAL LIABILITIES ............................................................. 24,197,663 21,209,807 Commitments and contingent liabilities - Notes P and R STOCKHOLDERS' EQUITY - NOTES H, I, J AND Q Preferred stock, no par: authorized 3,500,000; issued none Common stock, $1 par: authorized 112,000,000; issued 82,695,000 and 82,447,000 ...... 82,695 82,447 Surplus ............................................................................. 40,090 37,160 Retained earnings ................................................................... 1,465,007 1,273,369 Net unrealized gain (loss) on available-for-sale securities ......................... 12,688 (55,840) Treasury stock (at cost, 307,000 shares) ............................................ (12,956) ----------- ----------- Total Stockholders' Equity .................................................... 1,587,524 1,337,136 ----------- ----------- Total Liabilities and Stockholders' Equity .................................... $25,785,187 $22,546,943 =========== +=========== The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ STATE STREET BOSTON CORPORATION - -----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1995 1994 1993 - ----------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income ................................................................ $ 247,109 $ 220,343 $ 189,386 Noncash charges for depreciation, amortization, provision for loan losses and foreclosed properties, and deferred income taxes ....... 139,801 171,687 155,402 ----------- ----------- ----------- Net income adjusted for noncash charges ............................. 386,910 392,030 344,788 Adjustments to reconcile to net cash provided (used) by operating activities: Securities (gains) losses, net ......................................... (12,330) (1,707) (15,746) Net change in: Trading account assets ............................................... 23,711 (284,900) (52,141) Accrued income receivable ............................................ (28,489) (93,840) (58,594) Accrued taxes and other expenses ..................................... 47,595 28,444 27,467 Other, net ........................................................... (106,540) 15,512 (62,193) ----------- ----------- ----------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES .................... 310,857 55,539 183,581 INVESTING ACTIVITIES Payments for purchases of: Held-to-maturity securities ............................................ (2,125,443) (3,742,885) (3,673,561) Available-for-sale securities .......................................... (2,151,766) (4,711,683) (3,279,084) Lease financing assets ................................................. (621,006) (643,525) (426,313) Premises and equipment ................................................. (96,210) (124,599) (116,379) Proceeds from: Maturities of held-to-maturity securities .............................. 2,529,251 3,009,057 2,318,776 Maturities of available-for-sale securities ............................ 555,672 1,408,809 1,991,086 Sales of available-for-sale securities ................................. 3,654,042 1,524,662 1,002,271 Principal collected from lease financing ............................... 63,034 41,261 45,536 Net (payments for) proceeds from: Interest-bearing deposits with banks ................................... (1,128,109) 301,180 (345,003) Federal funds sold, resale agreements and securities borrowed .......... (3,098,745) (129,828) 795,260 Loans .................................................................. (633,210) (435,355) (617,280) ----------- ----------- ----------- NET CASH USED BY INVESTING ACTIVITIES ............................... (3,052,490) (3,502,906) (2,304,691) ----------- ----------- ----------- FINANCING ACTIVITIES Proceeds from issuance of: Long-term debt ......................................................... 99,025 Notes payable .......................................................... 175,218 Nonrecourse debt for lease financing ................................... 501,357 513,585 347,042 Common and treasury stock .............................................. 5,390 6,228 6,035 Payments for: Maturity of notes payable .............................................. (150,000) Nonrecourse debt for lease financing ................................... (61,625) (39,378) (38,695) Long-term debt ......................................................... (863) (785) (114,213) Cash dividends ......................................................... (56,121) (45,831) (39,297) Purchase of common stock ............................................... (17,160) Net proceeds from (payments for): Deposits ............................................................... 2,049,161 908,520 2,059,735 Short-term borrowings .................................................. 470,654 1,809,588 (3,217) ----------- ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES ........................... 3,066,011 3,001,927 2,316,415 ----------- ----------- ----------- Net Increase (Decrease) ............................................. 324,378 (445,440) 195,305 Cash and due from banks at beginning of period ............................ 1,097,563 1,543,003 1,347,698 ---------- ---------- ---------- CASH AND DUE FROM BANKS AT END OF PERIOD ............................ $1,421,941 $1,097,563 $1,543,003 ========== ========== ========== SUPPLEMENTAL DISCLOSURE Interest paid .......................................................... $ 902,617 $ 545,304 $ 394,696 Income taxes paid ...................................................... 97,605 70,479 57,977 The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY --------------------------------------------------------- STATE STREET BOSTON CORPORATION - --------------------------------------------------------------------------------------------------------------------------------
NET UNREALIZED GAIN (LOSS) ON COMMON RETAINED AVAILABLE-FOR- TREASURY (Dollars in thousands) STOCK SURPLUS EARNINGS SALE SECURITIES STOCK TOTAL - -------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1992 ................ $81,033 $14,693 $ 944,034 $ $ $1,039,760 Net income ............................... 189,386 189,386 Cash dividends declared - $.52 per share . (39,297) (39,297) Issuance of common stock - 812,902 net shares ................... 813 11,252 12,065 Foreign currency translation ............. (758) (758) ------- ------- ---------- --------- -------- ---------- Balance at December 31, 1993 ................ 81,846 25,945 1,093,365 1,201,156 Net income ............................... 220,343 220,343 Cash dividends declared - $.60 per share . (45,831) (45,831) Issuance of common stock - 601,215 net shares ................... 601 11,215 11,816 Foreign currency translation ............. 5,492 5,492 Net unrealized loss on available-for-sale securities ........................... (55,840) (55,840) ------- ------- ---------- --------- -------- ---------- Balance at December 31, 1994 ................ 82,447 37,160 1,273,369 (55,840) 1,337,136 Net income ............................... 247,109 247,109 Cash dividends declared - $.68 per share . (56,121) (56,121) Issuance of common stock - 247,850 net shares ................... 248 5,194 5,442 Common stock acquired - 416,200 shares ... (17,160) (17,160) Issuance of treasury stock - 108,916 shares ....................... (2,264) 4,204 1,940 Foreign currency translation ............. 650 650 Change in net unrealized gain on available-for-sale securities ..... 68,528 68,528 ------- ------- ---------- --------- -------- ---------- Balance at December 31, 1995 ................ $82,695 $40,090 $1,465,007 $ 12,688 $(12,956) $1,587,524 ======= ======= ========== ========= ======== ========== The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATE STREET BOSTON CORPORATION NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STATE STREET BOSTON CORPORATION NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES State Street Boston Corporation ("State Street") is a financial services corporation and provides banking, trust, investment management and securities processing services to both domestic and global customers. State Street's primary focus is servicing and managing financial assets on a global scale. State Street has three lines of business:financial asset services, investment management and commercial lending. Financial asset services are primarily accounting, custody, banking and other services for large pools of assets such as mutual funds and pension plans, participant recordkeeping for defined contribution plans and corporate trusteeships. Financial asset services is State Street's predominate line of business. Investment management is comprised of the business components that manage financial assets worldwide, both institutional investment management and personal trust services. Commercial lending activities include regional middle market, specialized and trade finance lending as well as asset-based finance and leasing. The accounting and reporting policies of State Street and its subsidiaries conform to generally accepted accounting principles. The significant policies are summarized below. BASIS OF PRESENTATION: The consolidated financial statements include the accounts of State Street and its subsidiaries, including its principal subsidiary, State Street Bank and Trust Company ("State Street Bank"). The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. All significant intercompany balances and transactions have been eliminated upon consolidation. The results of operations of businesses purchased are included from the date of acquisition. Investments in 50%-owned affiliates are accounted for by the equity method. Certain previously reported amounts have been reclassified to conform to the current method of presentation. For the Consolidated Statement of Cash Flows, State Street has defined cash equivalents as those amounts included in the Consolidated Statement of Condition caption, "Cash and due from banks." On January 31, 1995, State Street acquired Investors Fiduciary Trust Company ("IFTC") in a transaction accounted for as a pooling of interests. The financial information for prior periods has been restated to present the combined financial condition and results of operations of both companies as if the acquisition had taken place for all periods presented. See Note B - Acquisition of Investors Fiduciary Trust Company. RESALE AND REPURCHASE AGREEMENTS; SECURITIES BORROWED: State Street enters into purchases of U.S. Treasury and Federal agency securities ("U.S. Government securities") under agreements to resell the securities, which are recorded as securities purchased under resale agreements, an asset in the Consolidated Statement of Condition. These securities can be used as collateral for repurchase agreements. It is State Street's policy to take possession or control of the security underlying the resale agreement. The securities are revalued daily to determine if additional collateral is necessary. State Street enters into sales of U.S. Government securities under repurchase agreements, which are treated as financings, and the obligations to repurchase such securities sold are reflected as a liability in the Consolidated Statement of Condition. The dollar amount of U.S. Government securities underlying the repurchase agreements remains in investment securities. Securities borrowed are recorded at the amount of cash collateral deposited with the lender. State Street monitors daily its market exposure with respect to securities borrowed transactions and requests that excess collateral be returned or that additional securities be provided as needed. SECURITIES: Debt securities are held in both the investment and trading account portfolios. State Street accounts for debt and equity securities classified as available for sale at fair value and the after-tax unrealized gains and losses are reported as a separate component of stockholders' equity. Securities classified as held to maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts. Gains or losses on sales of available-for-sale securities are computed based on identified costs and included in fee revenue. Trading account assets are held in anticipation of short-term market movements and for resale to customers. Trading account assets are carried at market value and the resulting adjustment is reflected in fee revenue. LOANS AND LEASE FINANCING: Loans are placed on a non-accrual basis when they become 60 days past due as to either principal or interest, or when in the opinion of management, full collection of principal or interest is unlikely. When the loan is placed on non-accrual the accrual of interest is discontinued and previously recorded but unpaid interest is reversed and charged against current earnings. Subsidiaries of State Street provide asset-based financing to customers through a variety of lease arrangements. Leveraged leases are carried net of nonrecourse debt. Revenue on leveraged leases is recognized on a basis calculated to achieve a constant rate of return on the outstanding investment in the leases, net of related deferred tax liabilities, in the years in which the net investment is positive. Gains and losses on residual values of leased equipment sold are included in fee revenue. NOTE A-SUMMARY OF SIGNIfiCANT ACCOUNTING POLICIES (CONTINUED) ALLOWANCE FOR LOAN LOSSES: The adequacy of the allowance for loan losses is evaluated on a regular basis by management. Factors considered in evaluating the adequacy of the allowance include previous loss experience, current economic conditions and their effect on borrowers, and the performance of individual credits in relation to contract terms. The provision for loan losses charged to earnings is based upon management's judgment of the amount necessary to maintain the allowance at a level adequate to absorb probable losses. State Street adopted Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan" as amended by SFAS No. 118 on January 1, 1995. SFAS No. 114 requires that the allowance for loan losses related to certain loans be evaluated based on discounted cash flows using the loan's initial effective interest rate or the fair value of the underlying collateral for certain collateral dependent loans. Prior to January 1, 1995, the allowance for loan losses related to these loans was based on undiscounted cash flows or the fair value of the collateral for collateral dependent loans. The adoption of SFAS No. 114 did not have a material effect on the financial statements of State Street. PREMISES AND EQUIPMENT: Premises, equipment and leasehold improvements are carried at cost less accumulated depreciation and amortization. Depreciation and amortization charged to operating expenses are computed using the straight-line method over the estimated useful life of the related asset or the remaining term of the lease. In 1995, SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," was issued. This statement addresses how long-lived assets and certain identifiable intangibles held and used should be evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. State Street will adopt this new statement in 1996, and it is not expected to have a material impact. OTHER REAL ESTATE OWNED: Properties acquired in satisfaction of debt are carried at the lower of cost or fair market value and included in other assets. Reductions in carrying value are recognized through charges to other operating expenses. The costs of maintaining and operating foreclosed properties are expensed as incurred. REVALUATION GAINS AND LOSSES ON FINANCIAL CONTRACTS: The gross amount of unrealized gains and losses on foreign exchange and interest rate contracts are reported separately as other assets and other liabilities, respectively, in the Consolidated Statement of Condition, except where such gains and losses arise from contracts covered by qualifying master netting agreements. FOREIGN CURRENCY TRANSLATION: The assets and liabilities of foreign operations are translated at month-end exchange rates, and revenue and expenses are translated at average monthly exchange rates. Gains or losses from the translation of the net assets of certain foreign subsidiaries, net of any foreign currency hedges and related taxes, are credited or charged to retained earnings. Gains or losses from other translations are included in fee revenue. INTEREST RATE AND FOREIGN EXCHANGE CONTRACTS: State Street uses interest rate contracts as part of its overall interest rate risk management. Gains and losses on interest rate futures and option contracts that are designated as hedges and effective as such are deferred and amortized over the remaining life of the hedged assets or liabilities as an adjustment to interest revenue or interest expense. Interest rate swap contracts that are entered into as part of interest rate management are accounted for using the accrual method as an adjustment to interest revenue or interest expense. Interest rate contracts related to trading activities are adjusted to market value with the resulting gains or losses included in fee revenue. Foreign exchange trading positions are valued daily at prevailing exchange rates, and the resulting gain or loss is included in fee revenue. INCOME TAXES: The provision for income taxes includes deferred income taxes arising as a result of reporting some items of revenue and expense in different years for tax and financial reporting purposes. EARNINGS PER SHARE: The computation of primary earnings per share is based on the weighted average number of shares of common stock and common stock equivalents outstanding during each period. Stock option grants are included only in periods when the results are dilutive. The computation of fully diluted earnings per share additionally includes the assumption that the convertible debt had been converted as of the beginning of each period, with the elimination of related interest expense less the income tax benefit. NOTE B-ACQUISITION OF INVESTORS FIDUCIARY TRUST COMPANY On January 31, 1995, State Street acquired IFTC in a transaction accounted for as a pooling of interests. IFTC was acquired for 5,972,222 shares of State Street common stock. IFTC provides custody and fund accounting services to mutual funds, unit investment trusts, insurance portfolios and bank portfolios. NOTE C -INVESTMENT SECURITIES Investment securities consisted of the following at December 31:
- ----------------------------------------------------------------------------------------------------------------------- 1995 1994 AMORTIZED UNREALIZED FAIR Amortized Unrealized Fair (Dollars in thousands) COST GAINS LOSSES VALUE Cost Gains Losses Value - ----------------------------------------------------------------------------------------------------------------------- HELD TO MATURITY (at amortized cost) U.S. Treasury and Federal agencies ... $ 824,399 $ 5,217 $ 483 $ 829,133 $1,668,987 $ 590 $ 35,836 $1,633,741 State and political subdivisions ....... 1,130,197 317 19,210 1,111,304 Asset-backed securities 2,346,931 1,104 75,823 2,272,212 Other investments ..... 41,155 84 155 41,084 ---------- ------- ------- ---------- ---------- ------ -------- ---------- Total .............. $ 824,399 $ 5,217 $ 483 $ 829,133 $5,187,270 $2,095 $131,024 $5,058,341 ========== ======= ======= ========== ========== ====== ======== ========== AVAILABLE FOR SALE (at fair value) U.S. Treasury and Federal agencies ... $2,270,695 $17,579 $ 4,292 $2,283,982 $3,410,711 $0,496 $ 91,790 $3,319,417 State and political subdivisions ....... 1,299,720 10,411 3,898 1,306,233 Asset-backed securities 1,672,822 4,347 11,808 1,665,361 Other investments ..... 271,028 10,050 1,290 279,788 170,823 4,780 12,711 162,892 ---------- ------- ------- ---------- ---------- ------ -------- ---------- Total .............. $5,514,265 $42,387 $21,288 $5,535,364 $3,581,534 $5,276 $104,501 $3,482,309 ========== ======= ======= ========== ========== ====== ======== ==========
The amortized cost and fair value of available-for-sale and held-to-maturity securities by maturity at December 31, 1995, were as follows:
- ----------------------------------------------------------------------------------------------------------------------- WITHIN AFTER ONE AFTER FIVE AFTER ONE YEAR BUT WITHIN BUT WITHIN TEN (Dollars in thousands) OR LESS FIVE YEARS TEN YEARS YEARS - ----------------------------------------------------------------------------------------------------------------------- HELD TO MATURITY Amortized cost .................................................. $ 444,480 $ 379,919 Fair value ...................................................... 445,624 383,509 AVAILABLE FOR SALE Amortized cost .................................................. 2,151,694 3,012,062 184,458 166,051 Fair value ...................................................... 2,157,381 3,025,345 185,869 166,769
The maturity of asset-backed securities is based upon the expected principal payments. Securities carried at $2,226,579,000 and $4,246,809,000 at December 31, 1995 and 1994, respectively, were designated as security for public and trust deposits, borrowed funds and for other purposes as provided by law. During 1995, gains of $17,414,000 and losses of $5,084,000 were realized on sales of available-for-sale securities of $3,654,042,000. During 1994, gains of $5,843,000 and losses of $4,136,000 were realized on sales of available-for-sale securities of $1,524,662,000. During 1993, gains of $16,630,000 and losses of $884,000 were realized on sales of available-for-sale securities of $1,002,271,000. The excess of fair value over the amortized cost of available-for-sale securities on the January 1, 1994 adoption of SFAS No. 115 was $11,918,000 with an after-tax increase to stockholders' equity of $7,030,000. In November 1995, the Financial Accounting Standards Board issued a Special Report, "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities." In accordance with provisions in that Special Report, State Street chose to reclassify certain securities from held to maturity to available for sale on December 1, 1995. At the date of transfer, the amortized cost of those securities was $3,828,808,000 and the net unrealized gain on those securities was $2,684,000, which was recorded net of tax in stockholders' equity at the date of transfer. NOTE D-LOANS The loan portfolio consisted of the following at December 31:
- ---------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- Commercial and financial ................................................................. $2,572,553 $2,070,146 Real estate .............................................................................. 95,782 100,549 Consumer ................................................................................. 47,355 41,323 Foreign .................................................................................. 699,191 569,508 Lease financing .......................................................................... 571,261 451,695 ---------- ---------- Total loans ........................................................................ $3,986,142 $3,233,221 ========== ========== Non-accrual loans ........................................................................ $15,502 $23,043 Interest revenue under original terms ................................................. 2,034 2,245 Interest revenue recognized ........................................................... 445 834
Changes in the allowance for loan losses for the years ended December 31 were as follows:
- ---------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------- Balance at beginning of year ........................................................ $58,184 $54,316 $57,931 Provision for loan losses ........................................................... 8,000 $11,569 11,320 Loan charge-offs .................................................................... (6,726) (10,477) (18,545) Recoveries .......................................................................... 4,033 2,776 2,205 Allowance of subsidiary purchased ................................................... 1,405 ------- ------- ------- Balance at end of year ........................................................ $63,491 $58,184 $54,316 ======= ======= =======
During 1995 and 1994, loans totaling $1,742,000 and $191,000 were transferred to other real estate owned. NOTE E-PREMISES AND EQUIPMENT Premises and equipment consisted of the following at December 31:
- ---------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- Buildings and land ........................................................................... $272,933 $268,162 Leasehold improvements ....................................................................... 135,059 120,308 Equipment and furniture ...................................................................... 477,461 450,356 885,453 838,826 Accumulated depreciation and amortization .................................................... (417,865) (362,507) Total premises and equipment, net ...................................................... $467,588 $476,319
State Street has entered into noncancelable operating leases for premises and equipment. At December 31, 1995, future minimum payments under noncancelable operating leases with initial or remaining terms of one year or more totaled $572,925,000. This consisted of $45,340,000, $43,421,000, $37,042,000, $34,011,000 and $30,660,000 for the years 1996 to 2000, respectively, and $382,451,000 thereafter. The minimum rental commitments have been reduced by sublease rental commitments of $5,659,000. Substantially all leases include renewal options. Total rental expense amounted to $41,782,000, $35,023,000 and $26,673,000 in 1995, 1994 and 1993, respectively. Rental expense has been reduced by sublease revenue of $556,000, $1,083,000 and $2,149,000 in 1995, 1994 and 1993, respectively. NOTE F-INVESTMENT SECURITIES SOLD UNDER REPURCHASE AGREEMENTS State Street enters into sales of U.S. Government securities under repurchase agreements that are treated as financings, and the obligations to repurchase such securities sold are reflected as a liability in the Consolidated Statement of Condition. The dollar amount of U.S. Government securities underlying the repurchase agreements remains in investment securities. Information on these U.S. Government securities, and the related repurchase agreements including accrued interest, is shown in the table below. This table excludes repurchase agreements that are secured by securities purchased under resale agreements and securities borrowed. Information at December 31, 1995 was as follows:
- ---------------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT REPURCHASE SECURITIES SOLD AGREEMENTS BOOK BOOK (Dollars in thousands) AMOUNT MARKET AMOUNT RATE - ---------------------------------------------------------------------------------------------------------------------- Maturity of repurchase agreements: Overnight ........................................................... $ 557,986 $ 564,290 $ 557,683 5.25% 2 to 30 days ........................................................ 577,847 576,706 575,338 5.33 31 to 90 days ....................................................... 53,851 53,913 53,670 4.75 Over 90 days ........................................................ 550 550 550 2.25 ---------- ---------- ---------- Total .......................................................... $1,190,234 $1,195,459 $1,187,241 5.27 ========== ========== ==========
NOTE G-NOTES PAYABLE State Street Bank issues Bank Notes from time to time, in an aggregate amount not to exceed $750,000,000 and with original maturities ranging from 14 days to five years. The Bank Notes, which are not subject to redemption, represent unsecured debt obligations of State Street Bank. The Bank Notes are neither obligations of nor guaranteed by State Street and are recorded net of original issue discount. At December 31, 1995, there was a total of $175,218,000 of Bank Notes outstanding. This included $126,868,000 with an average maturity of 45 days and a weighted average interest rate of 5.79% and $48,350,000 of two year foreign currency denominated notes due October 1997, with an interest rate of 1.05%. NOTE H-LONG-TERM DEBT Long-term debt, less unamortized original issue discount, consisted of the following at December 31:
- ---------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- 5.95% Notes due 2003 ........................................................................ $ 99,710 $ 99,672 7.75% Convertible subordinated debentures due 2008 .......................................... 3,210 3,358 9.50% Mortgage note due 2009 ................................................................ 23,656 24,519 -------- -------- Total long-term debt ................................................................. $126,576 $127,549 ======== ========
The 5.95% notes are unsecured obligations of State Street. The 7.75% debentures are convertible to common stock at a price of $5.75 per share, subject to adjustment for certain events. The debentures are redeemable, at State Street's option, at a price of approximately 101.6%, declining annually to par by 1998. During 1995 and 1994, $148,000 and $563,000 of debentures were converted into 25,734 and 137,711 shares of common stock, respectively. At December 31, 1995, 558,261 shares of authorized common stock had been reserved for issuance upon conversion. The 9.50% mortgage note was fully collateralized by property at December 31, 1995. The aggregate maturities of this mortgage note for the years 1996 through 2000 are $948,000, $1,042,000, $1,146,000, $1,260,000 and $1,385,000, respectively. In August 1993, a shelf registration statement became effective that allows State Street to issue up to $250 million of unsecured debt securities. In September 1993, State Street issued $100 million of 5.95% Notes due 2003, and the remaining balance of $150 million at December 31, 1995, is available for issuance. NOTE I-STOCKHOLDERS' EQUITY The Board of Directors has authorized the repurchase of up to three million shares of State Street's common stock. Shares purchased under the authorization could be used for employee benefit plans or general corporate purposes. During the third quarter of 1995, the stock purchase program was initiated and 416,200 shares of State Street's common stock were purchased for employee benefit plans at an average cost of $41 per share through December 31, 1995. State Street has a long-term incentive plan from which stock options, stock appreciation rights (SARs) and performance units can be awarded. The exercise price of non-qualified and incentive stock options may not be less than fair value of such shares at date of grant and expire no longer than ten years from date of grant. Performance units have been granted to officers at the policy-making level. Performance units are earned over a performance period based on achievement of goals. Payment for performance units is made in cash equal to the fair market value of State Street's common stock after the conclusion of each performance period. Compensation expense related to performance units was $3,439,000, $333,000 and $2,126,000 for 1995, 1994 and 1993, respectively. Under the 1994 Stock Option and Performance Unit Plan, options and SARs covering 3,500,000 shares of common stock and 1,000,000 performance units may be issued. State Street has stock options and performance shares outstanding from previous plans under which no further grants can be made. Option activity during 1995 and 1994 was as follows:
- ---------------------------------------------------------------------------------------------------------------------- OPTION PRICE (In thousands, except per share amounts) SHARES PER SHARE TOTAL - ---------------------------------------------------------------------------------------------------------------------- Outstanding, December 31, 1993 ..................................................... 2,396 $ 3.95-45.31 $ 48,776 Granted ......................................................................... 907 28.94-39.25 28,087 Exercised ....................................................................... (460) 3.95-32.25 (6,088) Canceled ........................................................................ (41) 13.41-45.31 (1,056) ----- -------- Outstanding, December 31, 1994 ..................................................... 2,802 6.42-45.31 69,719 Granted ......................................................................... 378 32.50-44.00 12,985 Exercised ....................................................................... (327) 6.42-36.38 (5,306) Canceled ........................................................................ (67) 20.72-45.31 (2,094) ----- -------- Outstanding, December 31, 1995 ..................................................... 2,786 11.23-45.31 $ 75,304 ===== ========
At December 31, 1995, 1,175,814 shares under options were exercisable and 2,391,366 shares under options and SARs were available for future grants. During 1993, 393,000 options were exercised at per share prices of $3.52 to $20.38. In 1995, SFAS No. 123, "Accounting for Stock-Based Compensation," was issued. This statement addresses financial accounting and reporting standards for stock-based employee compensation plans. State Street plans to continue to measure compensation cost for these plans using the intrinsic value-based method of accounting prescribed by APB Opinion No. 25. State Street will adopt the new disclosure requirements of this statement in 1996. NOTE J-SHAREHOLDERS' RIGHTS PLAN In 1988, State Street declared a dividend of one preferred share purchase right for each outstanding share of common stock. Under certain conditions, a right may be exercised to purchase one two-hundredths share of a series of participating preferred stock at an exercise price of $75, subject to adjustment. The rights become exercisable if a party acquires or obtains the right to acquire 20% or more of State Street's common stock or after commencement or public announcement of an offer for 20% or more of State Street's common stock. When exercisable, under certain conditions, each right also entitles the holder thereof to purchase shares of common stock, of either State Street or of the acquiror, having a market value of two times the then current exercise price of that right. The rights expire in 1998 and may be redeemed at a price of $.005 per right at any time prior to expiration or the acquisition of 20% of State Street's common stock. Also, under certain circumstances, the rights may be redeemed after they become exercisable and may be subject to automatic redemption. NOTE K-FEE REVENUE-OTHER The Other category of fee revenue consisted of the following for the years ended December 31:
- ---------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------- Foreign exchange trading ......................................................... $140,687 $113,842 $ 82,705 Service fees ..................................................................... 59,469 48,205 40,717 Processing service fees .......................................................... 53,734 66,837 46,083 Securities gains, net ............................................................ 12,330 1,707 15,746 Trading account profits (losses) ................................................. 3,717 (327) 3,892 Other ............................................................................ 25,329 37,263 19,473 -------- -------- -------- Total fee revenue-other ................................................... $295,266 $267,527 $208,616 ======== ======== ========
NOTE L-OPERATING EXPENSES-OTHER The Other category of operating expenses consisted of the following for the years ended December 31:
- ---------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------- Contract services ................................................................ $117,061 $104,551 $ 74,850 Professional services ............................................................ 48,096 48,199 35,784 Advertising and sales promotion .................................................. 25,847 23,368 19,011 Postage, forms and supplies ...................................................... 23,803 20,593 18,583 Telecommunications ............................................................... 22,417 21,520 21,712 Other ............................................................................ 78,601 67,228 74,425 -------- -------- -------- Total operating expenses-other ............................................ $315,825 $285,459 $244,365 ======== ======== ========
NOTE M-QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a tabulation of the unaudited quarterly results of operations:
- ---------------------------------------------------------------------------------------------------------------------- (In thousands, except 1995 QUARTERS 1994 Quarters per share data) FOURTH THIRD SECOND FIRST Fourth Third Second First - ---------------------------------------------------------------------------------------------------------------------- Interest revenue ....... $346,436 $341,301 $330,128 $318,754 $284,049 $243,638 $209,423 $199,137 Interest expense ....... 232,252 232,320 224,309 218,303 182,246 144,017 112,451 105,379 -------- -------- -------- -------- -------- -------- -------- -------- Net interest revenue 114,184 108,981 105,819 100,451 101,803 99,621 96,972 93,758 Provision for loan losses 2,000 2,000 2,000 2,000 2,058 3,159 3,182 3,170 -------- -------- -------- -------- -------- -------- -------- -------- Net interest revenue after provision for loan losses ...... 112,184 106,981 103,819 98,451 99,745 96,462 93,790 90,588 Fee revenue ............ 296,831 283,782 276,724 261,735 255,950 252,681 249,666 259,035 -------- -------- -------- -------- -------- -------- -------- -------- Total revenue ....... 409,015 390,763 380,543 360,186 355,695 349,143 343,456 349,623 Operating expenses ..... 309,304 300,686 289,214 274,813 268,610 264,618 260,770 263,783 -------- -------- -------- -------- -------- -------- -------- -------- Income before income taxes ..... 99,711 90,077 91,329 85,373 87,085 84,525 82,686 85,840 Income taxes ........... 34,235 25,441 28,668 31,037 29,972 29,372 28,807 31,643 -------- -------- -------- -------- -------- -------- -------- -------- Net Income .......... $ 65,476 $64,636 $ 62,661 $ 54,336 $ 57,113 $ 55,153 $ 53,879 $ 54,197 ======== ======== ======== ======== ======== ======== ======== ======== Earnings Per Share: Primary ............. $.79 $.78 $.75 $.66 $.69 $.66 $.65 $.66 Fully diluted ....... .78 .77 .75 .65 .68 .66 .65 .65 Average Shares Outstanding: Primary ............. 83,113 83,172 83,019 82,890 82,851 82,958 82,854 82,649 Fully diluted ....... 83,720 83,911 83,697 83,488 83,436 83,543 83,512 83,346
NOTE N-EMPLOYEE BENEfiT PLANS RETIREMENT PLANS State Street and nearly all of its U.S. subsidiaries participate in a noncontributory cash balance defined benefit plan covering employees based on age and service. The plan provides individual account accumulations that are increased annually based on salary, service and interest credits. State Street uses the projected unit credit method as its actuarial valuation method. It is State Street's funding policy to contribute annually the maximum amount that can be deducted for Federal income tax purposes. Employees in non-U.S. offices participate in local plans, and the cost of these plans is not material. The following table sets forth the primary plan's funded status, actuarial assumptions and amounts recognized in the Consolidated Financial Statements as of and for the years ended December 31:
- ---------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------- Accumulated benefit obligation: Vested ....................................................................... $113,614 $ 91,706 $ 91,186 Nonvested .................................................................... 12,631 9,184 10,527 Additional benefits based on estimated future salary levels ..................... 22,691 17,003 12,465 -------- --------- --------- Projected benefit obligation ............................................. 148,936 117,893 114,178 Plan assets at fair value, primarily listed stocks and fixed income securities . 178,377 156,769 162,690 -------- --------- --------- Excess of plan assets over projected benefit obligation .................. 29,441 38,876 48,512 Unrecognized net asset at transition being amortized over 17.2 years ........... (15,916) (17,844) (19,771) Unrecognized net (gain) loss .................................................... 7,244 2,937 (3,152) Unrecognized prior service cost ................................................. (3,228) (3,499) (3,770) -------- --------- --------- Total prepaid pension expense included in other assets .................... $ 17,541 $ 20,470 $ 21,819 ======== ========= ========= Pension expense (income) included the following components: Service cost-benefits earned during period ................................... $ 11,005 $ 11,392 $ 10,030 Interest cost on projected benefit obligation ................................ 9,927 8,253 6,142 Actual return on plan assets ................................................. (33,607) (3,076) (22,874) Net amortization and deferral ................................................ 15,604 (15,220) 5,809 -------- --------- --------- Total pension expense (income) ............................................ $ 2,929 $ 1,349 $ (893) ======== ========= ========= Actuarial assumptions: Discount rate used to determine benefit obligation ........................... 8.00% 8.75% 7.50% Rate of increase in future compensation level ................................ 5.00 5.00 5.00 Expected long-term rate of return on plan assets ............................. 10.25 10.25 10.25
State Street has unfunded, non-qualified supplemental retirement plans that provide certain officers with defined pension benefits in excess of limits imposed by Federal tax law. At December 31, 1995, 1994 and 1993, the projected benefit obligation of these plans was $15,259,000, $5,168,000 and $2,790,000, and the related pension expense was $2,224,000, $436,000 and $430,000, respectively. Total pension expense for all plans was $8,300,000, $4,546,000 and $2,050,000 for 1995, 1994 and 1993, respectively. Employees of State Street Bank and certain subsidiaries with one or more years of service are eligible to contribute a portion of their pre-tax salary to a 401(k) Salary Savings Plan. State Street matches a portion of these contributions, and the related expenses were $8,572,000, $7,456,000 and $7,034,000 for 1995, 1994 and 1993, respectively. POSTRETIREMENT PLAN State Street Bank and certain subsidiaries provide health care and life insurance benefits for retired employees. Upon adoption of SFAS No. 106, State Street elected to amortize the accumulated postretirement benefit obligation (APBO), which at the date of adoption was $22,100,000, over a 20-year period. State Street continues to fund medical and life insurance benefit costs on a pay-as-you-go basis. The following table sets forth the financial status of the plan and amounts recognized in the Consolidated Financial Statements as of and for the years ended December 31:
- ---------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees ................................................................................... $ 5,468 $ 6,768 Fully eligible active employees ............................................................ 4,698 5,204 Other active employees ..................................................................... 10,887 11,668 -------- --------- 21,053 23,640 Unrecognized transition obligation ............................................................ (18,760) (19,864) Unrecognized net gain (loss) .................................................................. 8,762 3,775 -------- --------- Accrued postretirement benefit cost included in liabilities ............................ $ 11,055 $ 7,551 ======== ========= Postretirement benefits expense included the following components: Service cost-benefits earned during the period ............................................. $ 1,504 $ 1,887 Interest cost on APBO ...................................................................... 2,021 2,122 Net amortization and deferral .............................................................. 1,015 1,202 -------- --------- Total postretirement benefits expense .................................................. $ 4,540 $ 5,211 ======== =========
The discount rate used in determining the APBO was 8.00% and 8.75% for 1995 and 1994, respectively. The assumed health care cost trend rate used in measuring the APBO was 6.00% for 1996 and thereafter. If the health care trend rate assumptions were increased by 1%, the APBO would have increased by 6.0%, as of December 31, 1995, and the aggregate of service and interest costs for 1995 would have increased by 8.0%. NOTE O-INCOME TAXES The provision for income taxes included in the Consolidated Statement of Income consisted of the following:
- ---------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------- Current: Federal ........................................................................ $ 31,626 $ 26,901 $ 23,609 State .......................................................................... 22,598 22,223 18,111 Foreign ........................................................................ 21,084 24,945 16,456 -------- -------- -------- Total current ............................................................... 75,308 74,069 58,176 -------- -------- -------- Deferred: Federal ........................................................................ 33,640 33,542 29,422 State .......................................................................... 10,433 12,180 14,107 -------- -------- -------- Total deferred .............................................................. 44,073 45,722 43,529 -------- -------- -------- Total income taxes .......................................................... $119,381 $119,791 $101,705 ======== ======== ========
Current and deferred taxes for 1994 and 1993 have been reclassified to reflect the tax returns as actually filed. Income tax benefits of $1,845,000, $4,949,000 and $3,603,000 in 1995, 1994 and 1993, respectively, related to certain employee stock option exercises were recorded directly to stockholders' equity and are not included in the table above. Income tax expense related to net securities gains were $5,142,000, $573,000 and $6,782,000 for 1995, 1994 and 1993, respectively. Pre-tax income attributable to operations located outside the United States was $66,712,000, $75,655,000 and $51,823,000 in 1995, 1994 and 1993, respectively. Significant components of the deferred tax liabilities and assets at December 31 were as follows:
- ---------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- Deferred tax liabilities: Lease financing transactions .............................................................. $323,975 $264,698 Prepaid pension expense ................................................................... 9,421 8,593 Investment securities ..................................................................... 5,963 9,009 Depreciation, net ......................................................................... 2,291 Other ..................................................................................... 7,999 6,548 -------- -------- Total deferred tax liabilities ......................................................... 347,358 291,139 -------- -------- Deferred tax assets: Operating expenses ........................................................................ 36,535 37,481 Allowance for loan losses ................................................................. 27,217 26,246 Non-U.S. tax loss carryforwards ........................................................... 9,625 4,429 Depreciation, net ......................................................................... 7,944 Alternative minimum tax credit ............................................................ 10,606 25,553 Loan interest revenue ..................................................................... 4,608 3,327 Other ..................................................................................... 7,198 3,313 -------- -------- Total deferred tax assets .............................................................. 103,733 100,349 Valuation allowance for deferred tax assets ............................................... (9,625) (4,429) -------- -------- Net deferred tax assets ................................................................ 94,108 95,920 -------- -------- Net deferred tax liabilities ........................................................... $253,250 $195,219 ======== ========
At December 31, 1995, State Street had non-U.S. carryforward tax losses of $27,260,000 and U.S. tax credit carryforwards of $10,606,000. If not utilized, $12,100,000 of the losses will expire in the years 1998-2002. The tax credits and the remaining tax losses carry forward indefinitely. A reconciliation of the differences between the U.S. statutory income tax rate and the effective tax rates based on income before taxes is as follows:
- ---------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------- U.S. Federal income tax rate ........................................................... 35.0% 35.0% 35.0% Changes from statutory rate resulting from: State taxes, net of Federal benefit ................................................. 3.2 6.7 6.9 Tax-exempt interest revenue, net of disallowed interest ............................. (4.3) (4.1) (3.8) Tax credits ......................................................................... (1.7) (2.3) (3.5) Other, net .......................................................................... .4 ( .1) .3 ---- ---- ---- Effective tax rate ............................................................... 32.6% 35.2% 34.9% ==== ==== ====
For years beginning on or after January 1, 1995, the Commonwealth of Massachusetts reduced the tax rate applicable to financial institutions and permitted apportionment of income. The change in tax law resulted in a revaluation of the deferred tax assets and liabilities which existed at the beginning of 1995. This revaluation and the reduction of current year state tax expense reduced the 1995 provision for state taxes. In addition, during 1995 a settlement of prior years' state taxes resulted in a net $3.6 million reduction in taxes. The settlement resolved a claim over the taxability of interest revenue on certain Massachusetts bonds. NOTE P-CONTINGENT LIABILITIES State Street provides custody, securities processing, accounting and information services to mutual fund, master trust/master custody/global custody, corporate trust and defined contribution plan customers; and investment management services to institutions and individuals. Assets under custody and management, held by State Street in a fiduciary or custody capacity, are not included in the Consolidated Statement of Condition since such items are not assets of State Street. Management conducts regular reviews of its responsibilities for these services and considers the results in preparing its financial statements. In the opinion of management, there are no contingent liabilities at December 31, 1995 that would have a material adverse effect on State Street's financial position or results of operations. State Street is subject to pending and threatened legal actions that arise in the normal course of business. In the opinion of management, after discussion with counsel, these can be successfully defended or resolved without a material adverse effect on State Street's financial position or results of operations. NOTE Q-CASH, DIVIDEND, LOAN AND OTHER RESTRICTIONS During 1995, subsidiary banks of State Street were required by the Federal Reserve Bank to maintain average reserve balances of $271,684,000. State Street's principal source of funds for the payment of cash dividends to stockholders and purchase of its common stock is from dividends paid by State Street Bank. Federal and state banking regulations place certain restrictions on dividends paid by subsidiary banks to State Street. At December 31, 1995, State Street Bank had $426,266,000 of retained earnings available for distribution to State Street in the form of dividends. The Federal Reserve Act requires that extensions of credit by State Street Bank to certain affiliates, including State Street, be secured by specific collateral, that the extension of credit to any one affiliate be limited to 10% of capital and surplus (as defined), and that extensions of credit to all such affiliates be limited to 20% of capital and surplus. At December 31, 1995, consolidated retained earnings included $13,417,000 representing undistributed earnings of 50%-owned affiliates. State Street has a committed line of credit amounting to $50,000,000 to support its commercial paper program. NOTE R-OFF-BALANCE SHEET FINANCIAL INSTRUMENTS, INCLUDING DERIVATIVES State Street uses various off-balance sheet financial instruments, including derivatives, to satisfy the financing and risk management needs of customers, to manage interest rate and currency risk and to conduct trading activities. In general terms, derivative instruments are contracts or agreements whose value can be derived from interest rates, currency exchange rates and financial indices. Derivative instruments include forwards, futures, swaps, options and other instruments with similar characteristics. These instruments generate fee, interest or trading revenue. Associated with these instruments are market and credit risks that could expose State Street to potential losses. Market risk relates to the possibility that financial instruments may change in value due to future fluctuations in market prices. There may be considerable day-to-day variation in market-risk exposure because of changing expectations of future currency values or interest rates. State Street actively manages its market-risk exposure. Credit risk relates to the possibility that a loss may occur from the failure of another party to perform according to the terms of a contract. The credit risk associated with off-balance sheet financial instruments is managed in conjunction with State Street's balance sheet activities. State Street minimizes its credit risk by performing credit reviews of counterparties or by conducting activities through organized exchanges. Historically, credit losses with respect to these instruments have been immaterial. State Street uses derivative financial instruments in trading and balance sheet management activities. The objectives of trading activities are to act as an intermediary in arranging transactions for customers and to assume positions in interest rate or foreign currency markets based upon expectations of future market movements. The objective of balance sheet management activities is to utilize derivatives in minimizing the risk inherent in State Street's asset and liability structure from interest rate and currency exchange movements. The following table summarizes the contractual or notional amounts of derivative financial instruments held or issued by State Street at December 31:
- ---------------------------------------------------------------------------------------------------------------------- (Dollars in millions) 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- TRADING: Interest rate contracts: Swap agreements ............................................................................. $ 420 $ 109 Options and caps purchased .................................................................. 25 13 Options and caps written .................................................................... 36 25 Futures - short position .................................................................... 1,042 335 Futures - long position ..................................................................... 8 Options on futures purchased ................................................................ 1,000 Options on futures written .................................................................. 800 225 Foreign exchange contracts: Forward, swap and spot ...................................................................... 54,965 43,126 Options purchased ........................................................................... 20 40 Options written ............................................................................. 43 BALANCE SHEET MANAGEMENT: Interest rate contracts: Swap agreements ............................................................................. 217 223 Futures - short position .................................................................... 165 Caps purchased .............................................................................. 50 50 Foreign exchange contracts ..................................................................... 83
Interest rate contracts involve an agreement with a counterparty to exchange cash flows based on the movement of an underlying interest rate index. A swap agreement involves the exchange of a series of interest payments, either at a fixed or variable rate, based upon the notional amount without the exchange of the underlying principal amount. An option contract provides the purchaser, for a premium, the right but not the obligation to buy or sell the underlying financial instrument at a set price at or during a specified period. A futures contract is a commitment to buy or sell at a future date a financial instrument at a contracted price and may be settled in cash or through the delivery of the contracted instrument. Foreign exchange contracts involve an agreement to exchange the currency of one country for the currency of another country at an agreed upon rate and settlement date. Foreign exchange contracts consist of swap agreements, and forward and spot contracts. State Street's exposure from these interest rate and foreign exchange contracts results from the possibility that one party may default on its contractual obligation or from movements in exchange or interest rates. Credit risk is limited to the positive market value of the derivative financial instrument, which is significantly less than the notional value. The notional value provides the basis for determining the exchange of contractual cash flows. The exposure to credit loss can be estimated by calculating the cost on a present value basis to replace at current market rates all profitable contracts at year-end. The estimated aggregate replacement cost of derivative financial instruments in a net positive position was $658,000,000 and $413,000,000 at December 31, 1995 and 1994, respectively. FINANCIAL INSTRUMENTS HELD OR ISSUED FOR TRADING The following table represents the fair value and average fair value of financial instruments held or issued for trading purposes as of and for the years ended December 31, 1995 and 1994. The following amounts have been reduced by offsetting balances with the same counterparty where a master netting agreement exists:
- ---------------------------------------------------------------------------------------------------------------------- 1995 1994 AVERAGE AVERAGE (DOLLARS IN MILLIONS) FAIR VALUE FAIR VALUE FAIR VALUE FAIR VALUE - ---------------------------------------------------------------------------------------------------------------------- Foreign exchange contracts: Contracts in a receivable position ................................ $539 $751 $298 $376 Contracts in a payable position ................................... 466 704 288 $360 Other financial instrument contracts: Contracts in a receivable position ................................ 4 2 2 1 Contracts in a payable position ................................... 3 3 2 1
State Street is an active participant in the global foreign exchange market in support of a large institutional customer base engaged in international investing. Trading is conducted through eight treasury centers located in major financial centers throughout the world serving the needs of investment managers and their customers in the region. State Street operates in the spot and forward markets in over 30 currencies today as investors expand their horizons. State Street is also active in the foreign exchange interbank market where it trades with approximately 300 counterparty banks globally to facilitate customer transactions. State Street Bank uses interest rate futures and, to a lesser extent, options on interest rate futures, to minimize the impact of the market valuation of a portion of the bank's trading securities portfolio and to take positions on interest rate movements. Foreign exchange contracts and other contracts used in trading activities are carried at fair value. The fair value of the instruments is recorded in the balance sheet as part of other assets or other liabilities. Net trading gains and (losses) recognized in other fee revenue related to foreign exchange contracts totaled $141,000,000 and $114,000,000 and for other financial instrument contracts totaled ($1,000,000) and $1,000,000 in 1995 and 1994, respectively. Future cash requirements, if any, related to foreign currency contracts are represented by the gross amount of currencies to be exchanged under each contract unless State Street and the counterparty have agreed to pay or receive the net contractual settlement amount on the settlement date. Future cash requirements on other financial instruments are limited to the net amounts payable under the agreements. FINANCIAL INSTRUMENTS HELD OR ISSUED FOR BALANCE SHEET MANAGEMENT State Street enters into various interest rate and foreign exchange contracts in managing its balance sheet risk. State Street utilizes interest rate swaps and caps to manage interest rate risk and foreign exchange contracts to minimize currency translation risk. Interest rate derivative contracts are used to convert short-term floating rate liabilities into longer term fixed rate liabilities corresponding to long-term balance sheet assets. Income or expense on financial instruments used to manage interest rate exposure is recorded on an accrual basis as an adjustment to the yield of the related interest-earning asset or interest-bearing liability over the period covered by the contracts. Foreign exchange contracts are utilized to minimize the exposure to currency loss from balance sheet investments denominated in foreign currencies. The foreign exchange contracts and the currency translation of the investment are marked to market, and the unrealized gain or loss is recorded in other fee revenue. CREDIT-RELATED FINANCIAL INSTRUMENTS Credit-related financial instruments include commitments to extend credit, standby letters of credit, letters of credit and indemnified securities lent. The maximum credit risk associated with credit-related financial instruments is measured by the contractual amounts of these instruments. The following is a summary of the contractual amount of State Street's credit-related, off-balance sheet financial instruments at December 31:
- ---------------------------------------------------------------------------------------------------------------------- (Dollars in millions) 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- Loan commitments ................................................................................ $ 3,626 $ 2,536 Standby letters of credit ....................................................................... 1,286 929 Letters of credit ............................................................................... 179 168 Indemnified securities lent ...................................................................... 28,949 22,300
In conjunction with its lending activities, State Street enters into various commitments to extend credit and issues letters of credit. Loan commitments (unfunded loans and unused lines of credit), standby letters of credit and letters of credit are issued to accommodate the financing needs of State Street's customers. Loan commitments are essentially agreements by State Street to lend monies at a future date, so long as there are no violations of any conditions established in the agreement. Standby letters of credit and letters of credit commit State Street to make payments on behalf of customers when certain specified events occur. These loan and letter-of-credit commitments are subject to the same credit policies and reviews as loans on the balance sheet. Collateral, both the amount and nature, is obtained based upon management's assessment of the credit risk. Approximately 70% of the loan commitments expire in one year or less from the date of issue. Since many of the extensions of credit are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. On behalf of its customers, State Street lends their securities to creditworthy brokers and other institutions. In certain circumstances, State Street indemnifies its customers for the fair market value of those securities against a failure of the borrower to return such securities. State Street requires the borrowers to provide collateral in an amount equal to or in excess of 102% of the fair market value of the securities borrowed. The borrowed securities are revalued daily to determine if additional collateral is necessary. State Street held as collateral, cash and U.S. Government securities totaling $30.2 billion and $23.3 billion for indemnified securities at December 31, 1995 and 1994, respectively. NOTE S-FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107 requires the calculation and disclosure of the fair value of financial instruments. State Street uses the following methods to estimate the fair value of financial instruments. For financial instruments that have quoted market prices, those quotes were used to determine fair value. Financial instruments that have no defined maturity, have a remaining maturity of 180 days or less, or reprice frequently to a market rate, are assumed to have a fair value that approximates reported book value, after taking into consideration any applicable credit risk. If no market quotes were available, financial instruments were valued by discounting the expected cash flow(s) using an estimated current market interest rate for the financial instrument. For off-balance sheet derivative instruments, fair value is estimated as the amounts that State Street would receive or pay to terminate the contracts at the reporting date, taking into account the current unrealized gains or losses on open contracts. The short maturity of State Street's assets and liabilities results in having a significant number of financial instruments whose fair value equals or closely approximates reported balance sheet value. Such financial instruments are reported in the following balance sheet captions: Cash and due from banks; Interest-bearing deposits with banks; Securities purchased under resale agreements and securities borrowed; Federal funds sold; Deposits; Federal funds purchased; Securities sold under repurchase agreements; and Other short-term borrowings. Fair value of trading activities equals its balance sheet value. In 1995, the fair value of interest rate contracts used for balance sheet management would be a payable of $4 million; in 1994, the fair value of such interest rate contracts would be a receivable of $6 million. There is no cost for loan commitments. The reported value and fair value for other balance sheet captions at December 31 are as follows:
- ---------------------------------------------------------------------------------------------------------------------- 1995 1994 REPORTED FAIR Reported Fair (Dollars in millions) VALUE VALUE Value Value - ---------------------------------------------------------------------------------------------------------------------- Investment securities: Held to maturity .................................................... $ 824 $ 829 $5,187 $5,058 Available for sale .................................................. 5,535 5,535 3,482 3,482 Net loans (excluding leases) ........................................... 3,415 3,415 2,723 2,717 Notes payable .......................................................... 175 175 Long-term debt ......................................................... 127 132 128 113
NOTE T-FOREIGN ACTIVITIES Foreign activities, as defined by the Securities and Exchange Commission, are considered to be those revenue-producing assets and transactions that arise from customers domiciled outside the United States. Due to the nature of the Corporation's business, it is not possible to segregate precisely domestic and foreign activities. The determination of earnings attributable to foreign activities requires internal allocations for resources common to foreign and domestic activities. Subjective judgments have been used to arrive at these operating results for foreign activities. Interest expense allocations are based on the average cost of short-term domestic borrowed funds. Allocations for operating expenses and certain administrative costs are based on services provided and received. The following data relates to foreign activities, based on the domicile location of customers, for the years ended and as of December 31:
- ---------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------- Condensed Statement of Income: Interest revenue ............................................................ $ 450,568 $ 308,997 $ 226,213 Interest expense ............................................................ 343,240 223,001 158,392 ---------- ---------- ---------- Net interest revenue ................................................. 107,328 85,996 67,821 Provision for loan losses ................................................... 4,211 2,084 1,073 Fee revenue ................................................................. 226,272 180,851 129,942 ---------- ---------- ---------- Total revenue ........................................................ 329,389 264,763 196,690 Operating expenses .......................................................... 240,921 187,409 140,492 ---------- ---------- ---------- Net income before taxes .............................................. 88,468 77,354 56,198 Income taxes ................................................................ 31,781 31,819 22,171 ---------- ---------- ---------- Net Income ........................................................... $ 56,687 $ 45,535 $ 34,027 ========== ========== ========== Assets: Interest-bearing deposits with banks ........................................ $5,975,178 $4,847,019 $5,148,201 Loans and other assets ...................................................... 1,446,674 784,817 645,579 ---------- ---------- ---------- Total Assets ......................................................... $7,421,852 $5,631,836 $5,793,780 ========== ========== ==========
NOTE U-FINANCIAL STATEMENTS OF STATE STREET BOSTON CORPORATION (PARENT ONLY) Statement of Income
- ---------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------- Dividends from bank subsidiary .............................................. $ 96,000 $ 37,500 $ 46,400 Dividends and interest revenue .............................................. 12,198 6,793 4,228 Securities gains, net ....................................................... 5,217 -------- -------- -------- Total revenue ........................................................ 113,415 44,293 50,628 Interest on commercial paper ................................................ 7,826 3,458 Interest on long-term debt .................................................. 6,353 6,370 7,276 Other expenses .............................................................. 4,134 1,198 1,678 -------- -------- -------- Total expenses ....................................................... 18,313 11,026 8,954 Income tax expense (benefit) ................................................ 455 (1,483) (1,873) -------- -------- -------- Income before equity in undistributed income of subsidiaries ......... 94,647 34,750 43,547 Equity in undistributed income of subsidiaries and affiliate: Consolidated bank ........................................................ 132,176 161,402 132,688 Consolidated nonbank ..................................................... 15,127 19,706 11,085 Unconsolidated affiliate ................................................. 5,159 4,485 2,066 -------- -------- -------- 152,462 185,593 145,839 -------- -------- -------- Net Income ........................................................... $247,109 $220,343 $189,386 ======== ======== ========
Statement of Condition
- ---------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) December 31, 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- Assets Cash and due from banks .................................................................. $ 585 $ 864 Interest-bearing deposits with bank subsidiary ........................................... 165,378 182,831 Available-for-sale securities ............................................................ 28,196 29,935 Investment in consolidated subsidiaries: Bank .................................................................................. 1,455,036 1,208,913 Nonbank ............................................................................... 101,533 136,803 Investment in unconsolidated affiliate ................................................... 20,609 15,449 Notes receivable from nonbank subsidiaries ............................................... 15,597 5,958 Other assets ............................................................................. 2,550 10,527 Total Assets ...................................................................... $1,789,484 $1,591,280 Liabilities Commercial paper ......................................................................... $ 74,115 $ 135,411 Accrued taxes and other expenses ......................................................... 10,095 3,467 Other liabilities ........................................................................ 14,831 12,236 Long-term debt ........................................................................... 102,919 103,030 Total Liabilities ................................................................. 201,960 254,144 Stockholders' Equity ..................................................................... 1,587,524 1,337,136 Total Liabilities and Stockholders' Equity ........................................ $1,789,484 $1,591,280
Statement of Cash Flows
- ---------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------------- Operating Activities Net income ...................................................................... $ 247,109 $220,343 $189,386 Equity in undistributed income of subsidiaries and affiliate .................... (154,110) (185,593) (145,839) Securities gains, net ........................................................... (5,217) Other, net ...................................................................... 18,772 (20,912) 5,403 --------- -------- -------- Net Cash Provided by Operating Activities ................................ 106,554 13,838 48,950 Investing Activities Net (payments for) proceeds from: Investment in bank subsidiary ................................................ (4,289) Investment in nonbank subsidiaries ........................................... (2,468) (1,000) (1,000) Securities purchased under resale agreement .................................. 65,068 (36,491) Purchase of available-for-sale securities .................................... (13,343) (9,985) Maturity of available-for-sale securities .................................... 5,175 35,000 Sales of available-for-sale securities ....................................... 25,176 Interest bearing deposits with banks ......................................... 17,453 (182,810) Notes receivable from nonbank subsidiaries ................................... (9,639) (2,342) (2,248) Other, net ................................................................... 413 400 --------- -------- -------- Net Cash Provided (Used) by Investing Activities ......................... 22,354 (99,945) (39,339) Financing Activities Net proceeds from commercial paper .............................................. (61,296) 135,805 Proceeds from issuance of long-term debt ........................................ 99,025 Payment of long-term debt ....................................................... (9,685) (75,000) Proceeds from issuance of common and treasury stock ............................. 5,390 6,228 6,035 Payments for cash dividends ..................................................... (56,121) (45,831) (39,297) Payments for purchase of common stock ........................................... (17,160) --------- -------- -------- Net Cash Provided (Used) by Financing Activities ......................... (129,187) 86,517 (9,237) --------- -------- -------- Net Increase (Decrease) .................................................. (279) 410 374 --------- -------- -------- Cash and due from banks at beginning of period .................................. 864 454 80 --------- -------- -------- Cash and Due from Banks at End of Period ................................. $ 585 $ 864 $ 454 ========= ======== ========
REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- STATE STREET BOSTON CORPORATION The Stockholders and Board of Directors State Street Boston Corporation We have audited the accompanying consolidated statements of condition of State Street Boston Corporation as of December 31, 1995 and 1994, and the related consolidated statements of income, cash flows and changes in stockholders' equity for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of State Street Boston Corporation at December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Boston, Massachusetts January 10, 1996 /S/ ERNST & YOUNG LLP
SUPPLEMENTAL FINANCIAL DATA - ---------------------------------------------------------------------------------------------------------------------- STATE STREET BOSTON CORPORATION - ---------------------------------------------------------------------------------------------------------------------------------- CONDENSED AVERAGE STATEMENT OF CONDITION WITH NET INTEREST REVENUE ANALYSIS (TAXABLE EQUIVALENT BASIS) 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------------- AVERAGE AVERAGE Average Average (Dollars in millions) BALANCE INTEREST RATE Balance Interest Rate - ---------------------------------------------------------------------------------------------------------------------------------- ASSETS Interest-bearing deposits with banks ............................ $ 5,466 $ 287.0 5.25% $ 5,183 $209.4 4.04% Securities purchased under resale agreements and securities borrowed ........................................... 5,569 329.1 5.91% 3,102 132.1 4.26% Federal funds sold .............................................. 475 28.4 5.97% 537 23.9 4.45% Trading account assets .......................................... 412 21.1 5.13% 532 26.1 4.90% Investment securities: U.S. Treasury and Federal agencies ........................... 4,139 243.9 5.89% 3,455 184.3 5.33% State and political subdivisions ............................. 1,183 70.5 5.96% 1,120 57.0 5.09% Other investments ............................................ 2,212 133.7 6.05% 2,597 138.8 5.35% ------- --------- ------- ------ Total investment securities ............................... 7,534 448.1 5.95% 7,172 380.1 5.30% Loans: Commercial and financial ..................................... 2,474 166.3 6.72% 2,304 119.3 5.18% Real estate .................................................. 99 8.3 8.39% 96 7.3 7.57% Consumer ..................................................... 45 4.1 8.96% 43 3.3 7.72% Foreign ...................................................... 536 41.8 7.80% 586 37.6 6.41% Lease financing .............................................. 510 37.3 7.31% 372 22.2 5.98% ------- --------- ------- ------ Total loans ............................................... 3,664 257.8 7.04% 3,401 189.7 5.58% ------- --------- ------- ------ TOTAL INTEREST-EARNING ASSETS ............................. 23,120 1,371.5 5.93% 19,927 961.3 4.82% Cash and due from banks ......................................... 1,026 1,286 Allowance for loan losses ....................................... (62) (58) Premises and equipment .......................................... 481 462 Customers' acceptance liability ................................. 63 30 Other assets .................................................... 1,554 1,148 ------- ------- TOTAL ASSETS .............................................. $26,182 $22,795 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits: Savings ...................................................... $ 1,913 85.1 4.45% $ 1,992 56.7 2.85% Time ......................................................... 131 7.2 5.47% 172 7.8 4.52% Foreign ...................................................... 8,470 323.7 3.82% 7,392 216.2 2.93% ------- --------- ------- ------ Total interest-bearing deposits ........................... 10,514 416.0 3.96% 9,556 280.7 2.93% Federal funds purchased ......................................... 504 29.7 5.89% 411 16.0 3.90% Securities sold under repurchase agreements ..................... 7,080 400.2 5.65% 4,958 202.0 4.07% Other short-term borrowings ..................................... 761 40.5 5.32% 563 24.8 4.40% Notes payable ................................................... 214 12.3 5.73% 258 12.0 4.64% Long-term debt .................................................. 127 8.5 6.71% 128 8.6 6.73% ------- --------- ------- ------ TOTAL INTEREST-BEARING LIABILITIES ........................ 19,200 907.2 4.72% 15,874 544.1 3.43% --------- ---- ------ ---- Noninterest-bearing deposits .................................... 4,113 4,701 Acceptances outstanding ......................................... 64 30 Other liabilities ............................................... 1,322 906 Stockholders' equity ............................................ 1,483 1,284 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................ $26,182 $22,795 ======= ======= Net interest revenue ...................................... $ 464.3 $417.2 ========= ====== Excess of rate earned over rate paid ...................... 1.21% 1.39% ==== ==== NET INTEREST MARGIN* ...................................... 2.01% 2.09% ==== ==== *Net interest margin is taxable equivalent net interest revenue divided by average interest-earning assets.
1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------------------- Average Average Average Average Average Average Balance Interest Rate Balance Interest Rate Balance Interest Rate - ---------------------------------------------------------------------------------------------------------------------------------- ASSETS Interest-bearing deposits with banks .... $ 5,022 $201.4 4.01% $ 5,102 $257.7 5.05% $ 3,646 $262.1 7.19% Securities purchased under resale agreements and securities borrowed .... 3,255 102.3 3.14% 2,603 97.6 3.75% 913 51.4 5.63% Federal funds sold ...................... 534 16.2 3.03% 458 18.0 3.93% 425 24.4 5.74% Trading account assets .................. 416 16.7 4.02% 238 10.6 4.44% 152 11.9 7.83% Investment securities: U.S. Treasury and Federal agencies ... 2,181 124.7 5.72% 1,771 120.8 6.82% 1,471 124.4 8.46% State and political subdivisions ..... 732 39.8 5.43% 444 31.9 7.18% 384 34.7 9.05% Other investments .................... 2,169 117.9 5.43% 1,818 115.7 6.36% 1,581 132.2 8.36% ------- ------ ------- ------ ------- ------ Total investment securities ....... 5,082 282.4 5.55% 4,033 268.4 6.65% 3,436 291.3 8.48% Loans: Commercial and financial ............. 1,865 89.8 4.81% 1,556 87.7 5.64% 1,583 124.7 7.88% Real estate .......................... 97 6.8 6.97% 114 8.1 7.11% 144 12.2 8.47% Consumer ............................. 53 3.6 6.81% 66 5.0 7.65% 90 9.3 10.39% Foreign .............................. 282 16.4 5.82% 117 7.1 6.08% 87 6.5 7.43% Lease financing ...................... 279 15.7 5.61% 217 10.5 4.84% 204 9.9 4.84% ------- ------ ------- ------ ------- ------ Total loans ....................... 2,576 132.3 5.14% 2,070 118.4 5.72% 2,108 162.6 7.72% ------- ------ ------- ------ ------- ------ TOTAL INTEREST-EARNING ASSETS ..... 16,885 751.3 4.45% 14,504 770.7 5.31% 10,680 803.7 7.53% Cash and due from banks ................. 979 876 826 Allowance for loan losses ............... (58) (67) (64) Premises and equipment .................. 435 361 269 Customers' acceptance liability ......... 33 52 61 Other assets ............................ 653 529 422 ------- ------- ------- TOTAL ASSETS ...................... $18,927 $16,255 $12,194 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits: Savings .............................. $ 2,253 55.2 2.45 $ 2,323 76.3 3.28% $ 1,985 106.6 5.37% Time ................................. 234 12.3 5.24 294 13.0 4.42% 417 26.6 6.38% Foreign .............................. 4,954 146.1 2.95 3,955 174.6 4.42% 2,648 173.4 6.55% ------- ------ ------- ------ ------- ------ Total interest-bearing deposits ... 7,441 213.6 2.87 6,572 263.9 4.02% 5,050 306.6 6.07% Federal funds purchased ................. 741 21.0 2.84 919 30.8 3.35% 837 45.9 5.48% Securities sold under repurchase agreements ............................ 4,181 121.4 2.90 3,346 114.9 3.43% 1,811 93.3 5.15% Other short-term borrowings ............. 216 8.2 3.78 194 8.3 4.27% 156 8.3 5.29% Notes payable ........................... 511 19.9 3.90 389 18.4 4.74% 234 20.3 8.69% Long-term debt .......................... 122 10.0 8.19 146 13.3 9.10% 146 13.2 9.04% ------- ------ ------- ------ ------- ------ TOTAL INTEREST-BEARING LIABILITIES 13,212 394.1 2.98 11,566 449.6 3.89% 8,234 487.6 5.92% ------ ---- ------ ---- ------ ---- Noninterest-bearing deposits ............ 4,059 3,305 2,674 Acceptances outstanding ................. 34 52 61 Other liabilities ....................... 497 362 381 Stockholders' equity .................... 1,125 970 844 ------- ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................... $18,927 $16,255 $12,194 ======= ======= ======= Net interest revenue .............. $357.2 $321.1 $316.1 ====== ====== ====== Excess of rate earned over rate paid 1.47% 1.42% 1.61% ==== ==== ==== NET INTEREST MARGIN* .............. 2.12% 2.21% 2.96% ==== ==== ====
EX-21.1 17 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF STATE STREET BOSTON CORPORATION The following table sets forth the name of each subsidiary and the state or other jurisdiction of its organization. Certain subsidiaries of State Street have been ommitted in accordance with the SEC rules because, when considered in the aggregate, they did not constitute a "significant subsidiary" of State Street. STATE OR JURISDICTION NAME OF ORGANIZATION - ---- --------------------- State Street Bank and Trust Company Massachusetts State Street Bank and Trust Company, N.A. New York State Street Bank and Trust Company of Connecticut, N.A. Connecticut State Street Bank and Trust Company of Maryland, N.A. Maryland State Street Bank and Trust Company of New Hampshire, N.A. New Hampshire State Street Boston Capital Corporation Massachusetts State Street Boston Leasing Company, Inc. Massachusetts SPLS, Inc. Massachusetts State Street Massachusetts Securities Corporation Massachusetts State Street Bank International New York Wendover Financial Services Corporation North Carolina State Street International Holdings Massachusetts State Street Australia Limited New South Wales State Street Bank GmbH Germany State Street Bank Luxembourg, S.A. Luxembourg State Street Banque, S.A. France State Street Gestion, S.A. France State Street Trust Company, Canada Canada State Street Trust and Banking Company Limited Japan Clarke and Tilley Data Services (50% owned) United Kingdom SSB Investments, Inc. Massachusetts SSB Realty, Inc. Massachusetts State Street Florida, Inc. Florida Investors Fiduciary Trust Company Missouri State Street Global Advisors, Inc. Delaware State Street Global Advisors, United Kingdom, Limited United Kingdom State Street Global Advisors, Australia, Limited New South Wales Boston Financial Data Services (50% owned) Massachusetts All of the above wholly-owned subsidiaries are included in the consolidated financial statements of State Street. EX-23.1 18 CONSENTS OF EXPERTS AND COUNSEL EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of State Street Boston Corporation of our report dated January 10, 1996, included in the 1995 annual Report to Shareholders of State Street Boston Corporation. We consent to the incorporation by reference in Registration Statements (Forms S-8 Nos. 33-57359, 33-38672, 33-38671, 33-2882, 2-93157, 2-88641 and 2-68698) and in Post-Effective Amendment No. 2 to Registration Statement (Form S-8 No. 2-68696) pertaining to various stock option and performance share plans, in Registration Statement (Form S-3 No. 33-49885) pertaining to the registration of debt securities of State Street Boston Corporation, and in Amendment No. 1 to Registration Statement (Form S-3 No. 33-59505) pertaining to the registration of 2,986,111 shares of the common stock of State Street Boston Corporation of our report dated January 10, 1996, with respect to the consolidated financial statements of State Street Boston Corporation incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 1995. Ernst & Young LLP Boston, Massachusetts March 26, 1996 EX-27 19 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND INCOME STATEMENT AND FROM THE MANAGEMENT DISCUSSION AND ANALYSIS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND MANAGEMENT DISCUSSION. YEAR DEC-31-1995 DEC-31-1995 1,421,941 5,975,178 5,754,119 503,839 5,535,364 824,399 829,133 3,986,142 63,491 25,785,187 16,647,219 6,206,676 1,217,192 126,576 0 0 82,695 1,504,829 25,785,187 242,015 429,947 664,657 1,336,619 416,047 907,185 429,434 8,000 12,330 1,174,016 336,490 366,490 0 0 247,109 2.98 2.95 5.93 15,502 250 0 0 58,184 6,726 4,033 63,491 53,802 9,689 0
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