UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_________________________________________
Form 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-5108
STATE STREET CORPORATION
(Exact name of registrant as specified in its charter)
| Massachusetts (State or other jurisdiction of incorporation) |
04-2456637 (I.R.S. Employer Identification No.) |
| 225 Franklin Street Boston, Massachusetts (Address of principal executive office) |
02110 (Zip Code) |
617-786-3000
(Registrant’s telephone number, including
area code)
_________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| (Title of Each Class) | (Name of each exchange on which registered) |
|
|
|
| Common Stock, $1 par value | Boston Stock Exchange |
| Preferred share purchase rights | New York Stock Exchange |
| Pacific Stock Exchange | |
| SPACES SM * | New York Stock Exchange |
| * SPACES is a service mark of Goldman, Sachs & Co. |
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|
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes |X| No |_|
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 January 31, 2003 was $13,095,920,991.
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the Registrant’s most recently completed second fiscal quarter (June 28, 2002) was $14,423,974,353.
The number of shares of the Registrant’s Common Stock outstanding on January 31, 2003 was 332,163,024. Portions of the following documents are incorporated into the Parts of this Report on Form 10-K indicated below:
(1) The Registrant’s definitive Proxy Statement for the 2003 Annual Meeting to be filed pursuant to Regulation 14A on or before April 30, 2003 (Part III)
STATE STREET CORPORATION
FORM 10-K INDEX
For the Year Ended December 31,
2002
Part I
I T E M 1 . B u s i n e s s
The business of State Street Corporation (“State Street” or the “Corporation”) and its subsidiaries is further described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
State Street’s Internet address is www.statestreet.com, and the Corporation maintains a website at that address. State Street makes available on or through its Internet website, without charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, and since November 15, 2002, those reports have been made available on its website on the day such material was electronically filed with the Securities and Exchange Commission or if not reasonably practical on that day, on the first business day following electronic filing with the SEC.
General Development of Business
State Street Corporation is a financial holding company organized under the laws of the Commonwealth of Massachusetts. State Street, through its subsidiaries, provides a full range of products and services for sophisticated global investors.
State Street was organized in 1970 and conducts its business principally through its subsidiary, State Street Bank and Trust Company (“State Street Bank” or the “Bank”), 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.
With $6.2 trillion of assets under custody and $763 billion of assets under management at year-end 2002, State Street is a leading specialist in meeting the needs of sophisticated global investors. Clients include mutual funds and other collective investment funds, corporate and public pension funds, investment managers, and others. For information as to the financial results of non-U.S. activities, refer to Note 23 that appears in the Notes to Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data.”
Services are provided from 26 offices in the United States, and from offices in Australia, Belgium, Canada, Cayman Islands, Chile, France, Germany, Ireland, Japan, Luxembourg, Netherlands, Netherlands Antilles, New Zealand, People’s Republic of China, Singapore, South Korea, Switzerland, Taiwan, United Arab Emirates and the United Kingdom. State Street’s executive offices are located at 225 Franklin Street, Boston, Massachusetts.
Lines of Business
State Street reports two lines of business: Investment Servicing and Investment Management. In 2002, revenue from Investment Servicing comprised 86% of State Street’s total revenue, excluding the gain on the sale of State Street’s corporate trust business. Revenue from Investment Management comprised the remaining 14%. For additional information on State Street’s lines of business, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Lines of Business.”
Competition
State Street operates in a highly competitive environment in all areas of its business worldwide. State Street faces competition from other financial services institutions, deposit-taking institutions, investment management firms, private trustees, insurance companies, mutual funds, broker/dealers, investment banking firms, law firms, benefits consultants, leasing companies, and business service and software companies. As State Street expands globally, it encounters additional sources of competition.
State Street Corporation | 1
State Street believes there are certain key competitive considerations in these markets. These considerations include, for investment servicing: quality of service, economies of scale, technological expertise, quality and scope of sales and marketing, and price; and for investment management: expertise, experience, the availability of related service offerings, and price.
State Street’s competitive success depends upon its ability to develop and market new and innovative services; to adopt or develop new technologies; to bring new services to market in a timely fashion at competitive prices; and to continue and expand its relationships with existing clients and attract new clients.
Employees
At December 31, 2002, State Street had 19,501 employees, of whom 18,952 were full-time.
Completion of the Sale of the Corporate Trust Business
On December 31, 2002, State Street completed the sale of its corporate trust business to U.S. Bank, N.A., the lead bank of U.S. Bancorp. The gain on the sale, net of exit and other associated costs, totaled $495 million, equal to $296 million, or $.90 per diluted share after tax, and was recorded in the fourth quarter of 2002. The premium received at closing on the sale was $650 million. An additional $75 million was placed in escrow pending the successful transition of the business over the next 18 months. Exit and other associated costs were $155 million. The after-tax proceeds from this transaction provided partial funding for the acquisition by State Street of substantial parts of the global securities services business of Deutsche Bank AG in January 2003.
Acquisition of Substantial Parts of the Global Securities Services Business of Deutsche Bank AG
On January 31, 2003, State Street completed the primary closing of its acquisition of a substantial part of the global securities services business (“GSS”) of Deutsche Bank AG. Under the terms of the definitive agreements, first announced on November 5, 2002, State Street’s initial payment to Deutsche Bank for all business units to be acquired was approximately $1.1 billion. A separate closing will be held in the near future for business units in Italy and Austria, upon receipt of applicable regulatory approvals. In the period ending on the one-year anniversary of the closing, State Street will make additional payments of up to an estimated €360 million, based upon performance of the acquired business. The restructuring costs associated with the acquisition are expected to be $90–$110 million on a pre-tax basis, approximately half of which will be recorded in the first quarter of 2003 and the balance recorded over the next three quarters. GSS had approximately $2.2 trillion of assets under custody.
Approximately half of the initial payment was financed using existing resources, including the net proceeds from the sale of the corporate trust business mentioned above. State Street financed $595 million of the purchase price by issuance of equity, equity-related and capital securities to the public under an existing shelf registration statement. In January 2003, State Street issued $345 million, or 7.2 million shares of common stock, $345 million, or 1.7 million units of SPACES(SM), and $345 million of floating-rate, medium-term capital securities due 2008. SPACES are collateralized, forward purchase contract units for additional shares of common stock of State Street. Each SPACES has a stated amount of $200 and consists of PACES(SM), a fixed-share purchase contract and treasury securities, and COVERS(SM), a variable-share repurchase contract. The SPACES investors will receive total annual payments of 6.75% on the units, payable quarterly, consisting of an annual 2.75% coupon on the PACES and an annual 4.00% contract payment on the COVERS. State Street did not receive the proceeds from the SPACES at closing, but will receive proceeds of $345 million and issue common stock upon the settlement of the fixed share purchase contracts underlying the SPACES units on November 15, 2005. The floating rate capital securities were issued at LIBOR plus 50 basis points, and are subject to mandatory redemption on December 15, 2005, provided certain regulatory requirements are met, and otherwise are due on February 15, 2008. After the close of the financing transactions in January 2003, $469 million of State Street’s shelf registration was available for further issuance.
2 | State Street Corporation
Regulation and Supervision
G e n e r a l . State Street is registered with the Board of Governors of the Federal Reserve System (the “Federal Reserve 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 in which State Street and its non-bank subsidiaries may engage, including non-bank companies for which State Street owns or controls more than 5% of a class of voting shares, to those that the Federal Reserve Board considers to be closely related to banking or managing or controlling banks. The Federal Reserve Board may order a bank holding company to terminate any activity or its ownership or control of a non-bank subsidiary if the Federal Reserve 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 Federal Reserve 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.
State Street has also elected to become a financial holding company (“FHC”), which reduces to some extent the restrictions on activities of certain bank holding companies that qualify, such as State Street. FHC status allows banks to associate with, or have management interlocks with, business organizations engaged in securities activities. In order to qualify, each bank holding company’s depository subsidiaries must be well capitalized and well managed, and it must be meeting its Community Reinvestment Act obligations. Once qualified as an FHC, a bank holding company must continue to meet the applicable capital and management standards. Failure to maintain such standards may ultimately permit the Federal Reserve Board to take certain enforcement actions against such company.
Financial holding companies are permitted to engage in those activities that are determined by the Federal Reserve Board, working with the Secretary of the Treasury, to be financial in nature, incidental to an activity that is financial in nature, or complementary to a financial activity and that does not pose a safety and soundness risk. Activities defined to be financial in nature, include, but are not limited to, the following: providing financial or investment advice; underwriting; dealing in or making markets in securities; merchant banking, subject to significant limitations; and any activities previously found by the Federal Reserve Board to be closely related to banking.
C a p i t a l A d e q u a c y . Bank holding companies, such as State Street, are subject to Federal Reserve Board minimum risk-based capital and leverage ratio guidelines. At December 31, 2002, State Street’s consolidated Tier 1 and total risk-based capital ratios were 17.1% and 18.0%, respectively. For further information as to the Corporation’s capital position and capital adequacy, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Liquidity and Capital,” and to Note 12 in the Notes to Consolidated Financial Statements included in Part II, Item 8, “Financial Statements and Supplementary Data.”
State Street Bank is subject to similar risk-based capital and leverage ratio guidelines. State Street Bank exceeded the applicable minimum capital requirements as of December 31, 2002. Failure to meet capital requirements could subject a bank to a variety of enforcement actions, including the termination of deposit insurance by the Federal Deposit Insurance Corporation (the “FDIC”), and to certain restrictions on its business that are described further in this section.
In January 2001, the Basel Committee on Banking Supervision issued a second consultative paper, “Proposal for a New Basel Capital Accord” or the “New Accord”. The New Accord, which will apply to all banks as well as to holding companies that are parents of banking groups, is expected to be finalized by year-end 2003. Implementation of the new framework, to the extent it is adopted and promulgated by the Federal Reserve Board, is expected to begin at year-end 2006. The Corporation is monitoring the status and progress of the New Accord.
S u b s i d i a r i e s . The Federal Reserve System is the primary federal banking agency responsible for regulating State Street and its subsidiaries, including State Street Bank, for both U.S. and international operations. State Street is also subject to the Massachusetts bank holding company statute. The Massachusetts statute requires
State Street Corporation | 3
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 FDIC and is subject to applicable federal and state banking laws and to supervision and examination by the Federal Reserve Bank of Boston, as well as by the Massachusetts Commissioner of Banks, the FDIC, and the regulatory authorities of those countries in which a branch of State Street Bank is located. Other subsidiary trust companies are subject to supervision and examination by the Office of the Comptroller of the Currency, other offices of the Federal Reserve System or by the appropriate state banking regulatory authorities of the states in which they are located. State Street’s non-U.S. banking subsidiaries are subject to regulation by the regulatory authorities of the countries in which they are located. State Street’s U.S. broker-dealer subsidiary is subject to regulation by the Securities and Exchange Commission and is a member of the National Association of Securities Dealers, a self-regulatory organization. The capital of each of these banking subsidiaries is in excess of the minimum legal capital requirements as set by those authorities.
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 from State Street Bank to State Street and its non-bank subsidiaries. Transfers of this kind to State Street and its non-bank subsidiaries by State Street Bank are limited to 10% of State Street Bank’s capital and surplus with respect to each affiliate and to 20% in the aggregate, and are subject to certain collateral requirements. A bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or lease or sale of property or furnishing of services. Federal law also provides that certain transactions with affiliates must be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the institution as those prevailing at the time for comparable transactions involving other non-qualified companies or, in the absence of comparable transactions, on terms and under circumstances, including credit standards, that in good faith would be offered to, or would apply to, non-affiliated companies. The Federal Reserve Board has jurisdiction to regulate the terms of certain debt issues of bank holding companies.
State Street’s international banking operations are subject to the Federal Reserve Board’s Regulation K and related federal laws. Most of State Street’s international operations are conducted through State Street Bank’s Edge corporation subsidiary or through international branches of State Street Bank. An Edge corporation is a member bank subsidiary organized under the authority of the Federal Reserve Board that, in general, conducts only international activity. With the approval of the Federal Reserve Board, State Street Bank may invest more than 10 percent but not more than 20 percent of its capital and surplus in its Edge corporation subsidiary. State Street Bank has previously utilized this authority, and, in connection with the recent Deutsche Bank transaction (see “Acquisition of Substantial Parts of the Global Securities Services Business of Deutsche Bank AG”), received approval to raise its investment in its Edge corporation to the maximum amount permitted by law. Notwithstanding the 20 percent Edge corporation limit, State Street may continue to make new investments abroad directly (through the parent company or through direct, non-bank, subsidiaries of the parent company) or through international bank branch expansion, which investments are not subject to a similar limitation. As State Street Bank’s capital and surplus grows, State Street Bank could also make incremental investments in the Edge corporation subsidiary without exceeding the 20 percent limitation. Historically, State Street, in general, has found it more optimal from an operational and financial standpoint to expand abroad by increasing its investment in State Street Bank’s Edge corporation subsidiary. State Street cannot predict with certainty the impact on the pace of its future international expansion in light of having reached the Edge corporation subsidiary investment limitation, but believes that, in light of available alternatives, such limitation will not affect materially its ability to expand internationally in a manner that is acceptable from an operational and financial standpoint.
4 | State Street Corporation
S u p p o r t o f S u b s i d i a r y B a n k s . Under Federal Reserve Board policy, a bank holding company is required to act as a source of financial and managerial strength to its subsidiary banks. Under this policy, State Street is expected to commit resources to its subsidiary banks in circumstances where it might not do so absent such policy. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority payment.
Dividends
As a bank holding company, State Street is a legal entity separate and distinct from State Street Bank and its non-bank subsidiaries. The right of State Street to participate as a stockholder in any distribution of assets of State Street Bank upon its liquidation or reorganization or otherwise is subject to the prior claims by creditors of State Street Bank, including obligations for federal funds purchased and securities sold under repurchase agreements and deposit liabilities. Payment of dividends by State Street Bank is subject to provisions of the Massachusetts banking law, which provide 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) losses and bad debts, as defined, in excess of reserves specifically established for such losses and bad debts, have been deducted from net profits. 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, 2002, State Street Bank had $1.8 billion of retained earnings available for distribution to State Street in the form of dividends. Future dividend payments of the Bank and non-bank subsidiaries cannot be determined at this time.
Economic Conditions and Government Policies
Economic policies of the government and its agencies influence the operating environment of State Street. Monetary policy conducted by the Federal Reserve Board directly affects the level of interest rates and overall credit conditions of the economy. Policy is applied by the Federal Reserve Board through open market operations in U.S. government securities, changes in reserve requirements for depository institutions, and changes in the discount rate and availability of borrowing from the Federal Reserve. Government regulations of banks and bank holding companies are intended primarily for the protection of depositors of the banks, rather than of the stockholders of the institutions.
Factors Affecting Future Results
From time to time, information provided by State Street, statements made by its employees, or information included in its filings with the Securities and Exchange Commission (including this Form 10-K), may contain statements that are considered “forward looking statements” within the meaning of U.S. federal securities laws, including statements about the Corporation’s confidence and strategies and its expectations about revenue and market growth, acquisitions and divestitures, new technologies, services and opportunities, and earnings. These statements may be identified by such forward looking terminology as “expect,” “look,” “believe,” “anticipate,” “may,” “will,” or similar statements or variations of such terms. These forward-looking statements involve certain risks and uncertainties, which could cause actual results to differ materially. Factors that may cause such differences include, but are not limited to, the factors appearing in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Financial Goals and Factors That May Affect Them,” factors further described in conjunction with the forward-looking information, and factors elsewhere mentioned in this Form 10-K. Each of these factors, and others, are also discussed from time to time in the Corporation’s other filings with the Securities and Exchange Commission, including its reports on Form 10-Q. The forward-looking statements contained in this Form 10-K speak only as of the time the statements were given, and the Corporation does not undertake to revise those forward-looking statements to reflect events after the date of this report.
State Street Corporation | 5
Selected Statistical Information
The following tables contain State Street’s consolidated statistical information relating to, and should be read in conjunction with, the financial information provided in Part II, Item 8, “Financial Statements and Supplementary Data;” Part II, Item 6, “Selected Financial Data;” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
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.
| 2002 | 2001 | 2000 | ||||||||||||||||||||||
| Average | Average | Average | Average | Average | Average | |||||||||||||||||||
| (Dollars in millions; taxable equivalent) | Balance | Interest | Rate | Balance | Interest | Rate | Balance | Interest | Rate | |||||||||||||||
| A s s e t s | ||||||||||||||||||||||||
| Interest-bearing deposits with banks | $ | 24,341 | $ | 622 | 2.56 | % | $ | 20,548 | $ | 821 | 3.99 | % | $ | 16,399 | $ | 743 | 4.53 | % | ||||||
| Securities purchased under resale agreements | ||||||||||||||||||||||||
| and securities borrowed | 21,070 | 370 | 1.76 | 19,768 | 798 | 4.04 | 18,531 | 1,159 | 6.26 | |||||||||||||||
| Federal funds sold | 516 | 9 | 1.66 | 716 | 27 | 3.84 | 1,186 | 75 | 6.30 | |||||||||||||||
| Trading account assets(2) | 1,040 | 31 | 2.95 | 1,190 | 55 | 4.61 | 1,083 | 54 | 4.99 | |||||||||||||||
| Investment securities: | ||||||||||||||||||||||||
| U.S. Treasury and federal agencies | 12,051 | 404 | 3.35 | 8,434 | 447 | 5.30 | 8,308 | 520 | 6.26 | |||||||||||||||
| State and political subdivisions(2) | 1,801 | 97 | 5.42 | 1,653 | 107 | 6.47 | 1,932 | 133 | 6.91 | |||||||||||||||
| Other investments | 7,323 | 287 | 3.93 | 7,258 | 385 | 5.31 | 4,954 | 324 | 6.54 | |||||||||||||||
| Commercial and financial loans | 3,022 | 82 | 2.70 | 4,130 | 133 | 3.22 | 3,785 | 186 | 4.90 | |||||||||||||||
| Lease financing(2) | 2,083 | 133 | 6.40 | 1,951 | 149 | 7.66 | 1,659 | 127 | 7.69 | |||||||||||||||
| Total Interest-Earning Assets(2) | 73,247 | 2,035 | 2.78 | 65,648 | 2,922 | 4.45 | 57,837 | 3,321 | 5.74 | |||||||||||||||
| Cash and due from banks | 1,165 | 1,271 | 1,267 | |||||||||||||||||||||
| Other assets | 4,673 | 4,406 | 3,819 | |||||||||||||||||||||
| Total Assets | $ | 79,085 | $ | 71,325 | $ | 62,923 | ||||||||||||||||||
| L i a b i l i t i e s a n d S t o c k h o l d e r s ’ E q u i t y | ||||||||||||||||||||||||
| Interest-bearing deposits: | ||||||||||||||||||||||||
| Savings | $ | 2,171 | 20 | 0.92 | $ | 2,845 | 101 | 3.55 | $ | 2,466 | 132 | 5.35 | ||||||||||||
| Time | 7,301 | 133 | 1.82 | 2,058 | 81 | 3.94 | 313 | 21 | 6.75 | |||||||||||||||
| Non-U.S. | 26,393 | 345 | 1.31 | 27,094 | 674 | 2.49 | 24,615 | 859 | 3.49 | |||||||||||||||
| Total interest-bearing deposits | 35,865 | 498 | 1.39 | 31,997 | 856 | 2.68 | 27,394 | 1,012 | 3.69 | |||||||||||||||
| Securities sold under repurchase agreements | 23,881 | 356 | 1.49 | 20,426 | 739 | 3.62 | 19,867 | 1,182 | 5.95 | |||||||||||||||
| Federal funds purchased | 3,085 | 50 | 1.63 | 2,745 | 100 | 3.63 | 729 | 46 | 6.33 | |||||||||||||||
| Other short-term borrowings | 1,242 | 20 | 1.60 | 1,097 | 42 | 3.86 | 673 | 40 | 6.04 | |||||||||||||||
| Long-term debt | 1,259 | 71 | 5.68 | 1,218 | 93 | 7.64 | 1,080 | 82 | 7.62 | |||||||||||||||
| Total Interest-Bearing Liabilities | 65,332 | 995 | 1.52 | 57,483 | 1,830 | 3.18 | 49,743 | 2,362 | 4.75 | |||||||||||||||
| Noninterest-bearing deposits | 6,141 | 6,929 | 7,198 | |||||||||||||||||||||
| Other liabilities | 3,406 | 3,279 | 3,052 | |||||||||||||||||||||
| Stockholders’ equity | 4,206 | 3,634 | 2,930 | |||||||||||||||||||||
| Total Liabilities and Stockholders’ Equity | $ | 79,085 | $ | 71,325 | $ | 62,923 | ||||||||||||||||||
| Net Interest Revenue | $ | 1,040 | $ | 1,092 | $ | 959 | ||||||||||||||||||
| Excess of rate earned over rate paid | 1.26 | % | 1.27 | % | .99 | % | ||||||||||||||||||
| Net Interest Margin(1) | 1.42 | 1.66 | 1.66 | |||||||||||||||||||||
| (1) | Net interest margin is taxable
equivalent net interest revenue divided by average interest-earning assets. |
| (2) | Interest revenue on non-taxable
investment securities and loans includes the effect of taxable-equivalent
adjustments, a method of presentation in which interest income on tax-exempt
securities is adjusted to present the earnings performance on a basis equivalent
to interest earned on fully taxable securities with a corresponding charge
to income tax expense. The adjustment is computed using a federal income
tax rate of 35%, adjusted for applicable state income taxes, net of the
related federal tax benefit. The taxable equivalent adjustments included
in interest revenue above were $61 million, $67 million and $65 million
for the years ended December 31, 2002, 2001 and 2000, respectively. |
| 6 | State
Street Corporation | |
The table below summarizes changes in taxable-equivalent 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.
| 2002 Compared to 2001 | 2001 Compared to 2000 | |||||||||||||||||
| Change in | Change in | Net Increase | Change in | Change in | Net Increase | |||||||||||||
| (Dollars in millions; taxable equivalent) | Volume | Rate | (Decrease) | Volume | Rate | (Decrease) | ||||||||||||
| I n t e r e s t r e v e n u e r e l a t e d t o : | ||||||||||||||||||
| Interest-bearing deposits with banks | $ | 150 | $ | (349 | ) | $ | (199 | ) | $ | 189 | $ | (111 | ) | $ | 78 | |||
| Securities purchased under resale agreements | ||||||||||||||||||
| and securities borrowed | 52 | (480 | ) | (428 | ) | 78 | (439 | ) | (361 | ) | ||||||||
| Federal funds sold | (7 | ) | (11 | ) | (18 | ) | (30 | ) | (18 | ) | (48 | ) | ||||||
| Trading account assets | (7 | ) | (17 | ) | (24 | ) | 5 | (4 | ) | 1 | ||||||||
| Investment securities: | ||||||||||||||||||
| U.S. Treasury and federal agencies | 192 | (235 | ) | (43 | ) | 8 | (81 | ) | (73 | ) | ||||||||
| State and political subdivisions | 9 | (19 | ) | (10 | ) | (19 | ) | (7 | ) | (26 | ) | |||||||
| Other investments | 4 | (102 | ) | (98 | ) | 150 | (89 | ) | 61 | |||||||||
| Commercial and financial loans | (35 | ) | (16 | ) | (51 | ) | 17 | (70 | ) | (53 | ) | |||||||
| Lease financing | 10 | (26 | ) | (16 | ) | 22 | 22 | |||||||||||
| Total Interest-Earning Assets | 368 | (1,255 | ) | (887 | ) | 420 | (819 | ) | (399 | ) | ||||||||
| I n t e r e s t e x p e n s e r e l a t e d t o : | ||||||||||||||||||
| Deposits: | ||||||||||||||||||
| Savings | (24 | ) | (57 | ) | (81 | ) | 20 | (51 | ) | (31 | ) | |||||||
| Time | 207 | (155 | ) | 52 | 118 | (58 | ) | 60 | ||||||||||
| Non-U.S. | (18 | ) | (311 | ) | (329 | ) | 86 | (271 | ) | (185 | ) | |||||||
| Securities sold under repurchase agreements | 125 | (508 | ) | (383 | ) | 33 | (476 | ) | (443 | ) | ||||||||
| Federal funds purchased | 12 | (62 | ) | (50 | ) | 128 | (74 | ) | 54 | |||||||||
| Other short-term borrowings | 6 | (28 | ) | (22 | ) | 26 | (24 | ) | 2 | |||||||||
| Long-term debt | 3 | (25 | ) | (22 | ) | 11 | 11 | |||||||||||
| Total Interest-Bearing Liabilities | 311 | (1,146 | ) | (835 | ) | 422 | (954 | ) | (532 | ) | ||||||||
| Net Interest Revenue | $ | 57 | $ | (109 | ) | $ | (52 | ) | $ | (2 | ) | $ | 135 | $ | 133 | |||
| Investment Portfolio | ||||||||||||||||||
| Investment securities consisted of the following at December 31: | ||||||||||||||||||
| (Dollars in millions) | 2002 | 2001 | 2000 | |||||||||||||||
| H e l d t o M a t u r i t y ( a t a m o r t i z e d c o s t ) : | ||||||||||||||||||
| Held to Maturity (at amortized cost): | ||||||||||||||||||
| U.S. Treasury and federal agencies | $ | 1,327 | $ | 1,296 | $ | 1,272 | ||||||||||||
| Other investments | 216 | 147 | 48 | |||||||||||||||
| Total | $ | 1,543 | $ | 1,443 | $ | 1,320 | ||||||||||||
| A v a i l a b l e f o r S a l e ( a t f a i r v a l u e ) : | ||||||||||||||||||
| U.S. Treasury and federal agencies | $ | 15,760 | $ | 10,248 | $ | 5,875 | ||||||||||||
| State and political subdivisions | 2,018 | 1,463 | 1,680 | |||||||||||||||
| Asset-backed securities | 4,276 | 3,638 | 3,280 | |||||||||||||||
| Collateralized mortgage obligations | 548 | 795 | 1,009 | |||||||||||||||
| Other debt investments | 703 | 572 | 553 | |||||||||||||||
| Money market mutual funds | 3,057 | 2,518 | ||||||||||||||||
| Other equity securities | 166 | 104 | 23 | |||||||||||||||
| Total | $ | 26,528 | $ | 19,338 | $ | 12,420 | ||||||||||||
State Street Corporation | 7
The maturities of debt investment securities at December 31, 2002, and the weighted average taxable-equivalent yields were as follows:
| Years | ||||||||||||||||||||
| Under 1 | 1 to 5 | 6 to 10 | Over 10 | |||||||||||||||||