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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended March 31, 2004

or

¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For The Transition Period From                     to                    

 

Commission File No. 0-5108

 

STATE STREET CORPORATION

(Exact name of registrant as specified in its charter)

 

MASSACHUSETTS   04-2456637

(State or other jurisdiction

of incorporation)

  

(I.R.S. Employer

Identification No.)

225 Franklin Street

Boston, Massachusetts

  

02110

(Zip Code)

(Address of principal

executive office)

    

 

617-786-3000

(Registrant’s telephone number, including area code)

 

 

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 

Yes x    No ¨

 

The number of shares of the Registrant’s Common Stock outstanding on April 30, 2004 was 335,919,316.

 

Table of Contents

STATE STREET CORPORATION

 

Table of Contents

 

          Page
PART I.    FINANCIAL INFORMATION     
Item 1.    Financial Statements     
Consolidated Statement of Income    1
Consolidated Statement of Condition    2
Consolidated Statement of Changes in Stockholders’ Equity    3
Consolidated Statement of Cash Flows    4
Notes to Consolidated Financial Statements    5
Independent Accountants’ Review Report    16
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations    17
Item 3.    Quantitative and Qualitative Disclosures About Market Risk    32
Item 4.    Controls and Procedures    32
PART II.     OTHER INFORMATION     
Item 1.    Legal Proceedings    33
Item 2.    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities    33
Item 4.    Submission of Matters to a Vote of Security Holders    34
Item 6.    Exhibits and Reports on Form 8-K    34
Signature    35
Exhibits     

Table of Contents

PART I.    ITEM 1.

FINANCIAL STATEMENTS

 

Consolidated Statement of Income—State Street Corporation (Unaudited)

 

(Dollars in millions, except per share data) Three months ended March 31,

      2004      2003

Fee Revenue:

              

Servicing fees

    $ 555    $ 438

Management fees

      147      125

Securities lending

      64      55

Foreign exchange trading

      118      72

Brokerage fees

      45      30

Processing fees and other

      84      70
    
  

Total fee revenue

      1,013      790

Net Interest Revenue:

              

Interest revenue

      384      397

Interest expense

      181      193
    
  

Net interest revenue

      203      204

Provision for loan losses

      –      –
    
  

Net interest revenue after provision for loan losses

      203      204

Gains on the sales of available-for-sale investment securities

      3      26
    
  

Total Revenue

      1,219      1,020

Operating Expenses:

              

Salaries and employee benefits

      462      443

Information systems and communications

      139      130

Transaction processing services

      96      72

Occupancy

      90      71

Merger and integration costs

      18      37

Other

      103      81
    
  

Total operating expenses

      908      834
    
  

Income before income taxes

      311      186

Income tax expense

      94      90
    
  

Net Income

    $ 217    $ 96
    
  

Earnings Per Share

              

Basic

    $ .65    $ .29

Diluted

      .63      .29

Average Shares Outstanding (in thousands)

              

Basic

      334,635      329,569

Diluted

      342,129      332,054

Cash Dividends Declared Per Share

    $ .15    $ .13

 

The accompanying notes are an integral part of these financial statements.

 

1

Table of Contents

PART I.    ITEM 1.

FINANCIAL STATEMENTS (continued)

 

Consolidated Statement of Condition—State Street Corporation

 

  

(Dollars in millions)

     
 		 March 31,
2004		  
 		    
 		 December 31,
2003		  
 
  
     (Unaudited)     (Note 1)  

Assets

                 

Cash and due from banks

    $ 2,379     $ 3,376  

Interest-bearing deposits with banks

      27,228       21,738  

Securities purchased under resale agreements

      13,968       9,447  

Federal funds sold

      1,000       104  

Trading account assets

      347       405  

Investment securities (including securities pledged of $             and $13,278)

      34,605       38,215  

Loans (less allowance of $36 and $61)

      4,968       4,960  

Premises and equipment

      1,238       1,212  

Accrued income receivable

      1,014       1,015  

Goodwill

      1,329       1,326  

Other intangible assets

      542       525  

Other assets

      4,278       5,211  
    
 

Total Assets

    $ 92,896     $ 87,534  
    
 

Liabilities

                 

Deposits:

                 

Noninterest-bearing

    $ 9,352     $ 7,893  

Interest-bearing—U.S.

      6,826       5,062  

Interest-bearing—Non-U.S.

      37,334       34,561  
    
 

Total deposits

      53,512       47,516  

Securities sold under repurchase agreements

      21,811       22,806  

Federal funds purchased

      2,083       1,019  

Other short-term borrowings

      1,434       1,437  

Accrued taxes and other expenses

      2,386       2,424  

Other liabilities

      3,484       4,363  

Long-term debt

      2,244       2,222  
    
 

Total Liabilities

      86,954       81,787  

Stockholders’ Equity

                 

Preferred stock, no par: authorized 3,500,000 shares; issued none

                 

Common stock, $1 par: authorized 500,000,000 shares, issued 337,130,000 and 337,132,000

      337       337  

Surplus

      298       329  

Retained earnings

      5,174       5,007  

Accumulated other comprehensive income

      207       192  

Treasury stock, at cost (1,705,000 and 2,658,000 shares)

      (74 )     (118 )
    
 

Total Stockholders’ Equity

      5,942       5,747  
    
 

Total Liabilities and Stockholders’ Equity

    $ 92,896     $ 87,534  
    
 
                  
  

 

The accompanying notes are an integral part of these financial statements.

 

2

Table of Contents

PART I.    ITEM 1.

FINANCIAL STATEMENTS (continued)

 

Consolidated Statement of Changes in Stockholders’ Equity—State Street Corporation (Unaudited)

 

  
    Common Stock
   Surplus    

Retained

Earnings

    

Accumulated

Other

Comprehensive

Income (Loss)

     Treasury Stock
        
(Dollars in millions, shares in thousands)   Shares     Amount         Shares     Amount     Total  
  

Balance at December 31, 2002

   329,992     $ 330   $ 104     $ 4,472     $ 106     5,065     $ (225 )   $ 4,787  

Comprehensive income:

                                                          

Net income

                         96                             96  

Change in net unrealized gains/losses on available-for sale securities, net of related taxes of $(16)

                                 (19 )                   (19 )

Foreign currency translation, net of related taxes of $4

                                 8                     8  

Change in unrealized gains/losses on cash flow hedges, net of related taxes of $(1)

                                 (1 )                   (1 )
   
 
 
 
 
 
 
 

Total comprehensive income

                         96       (12 )                   84  

Cash dividends declared-$.13 per share

                         (43 )                           (43 )

Common stock acquired

                                       71       (2 )     (2 )

Common stock issued pursuant to:

                                                          

January 14, 2003, Registration Statement

   7,153       7     260                                     267  

Present value of the estimated fees payable with respect to SPACES, pursuant to January 14, 2003 Registration Statement

                 (57 )                                   (57 )

Stock awards and options exercised, including tax benefit of $2

                 (1 )                   (373 )     16       15  

Debt conversion

                 (1 )                   (14 )     1       –  
   
 
 
 
 
 
 
 

Balance at March 31, 2003

   337,145     $ 337   $ 305     $ 4,525     $ 94     4,749     $ (210 )   $ 5,051  
   
 
 
 
 
 
 
 

Balance at December 31, 2003

   337,132     $ 337   $ 329     $ 5,007     $ 192     2,658     $ (118 )   $ 5,747  

Comprehensive income:

                                                          

Net income