10-K 1 d13865.htm

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, 2003
OR
o 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
(Address of principal executive office)		(Zip Code)

617-786-3000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

(Title of Each Class)	(Name of each exchange on which registered)

Common Stock, $1 par value Preferred share purchase rights	Boston Stock Exchange 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 o

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 o

The aggregate market value of the voting and non-voting common equity held by non-affiliates (persons other than directors and executive officers) 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 30, 2003) was $13,081,877,314.

The number of shares of the Registrant’s Common Stock outstanding on January 31, 2004 was 335,389,544.

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 2004 Annual Meeting to be filed pursuant to Regulation 14A on or before April 30, 2004 (Part III)

STATE STREET CORPORATION
FORM 10-K INDEX
For the Year Ended December 31, 2003

		Page Number

PART I
Item 1	Business	1-13
Item 2	Properties	14
Item 3	Legal Proceedings	14
Item 4	Submission of Matters to a Vote of Security Holders	14
Item 4A	Executive Officers of the Registrant	15

PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16-17
Item 6	Selected Financial Data	18
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operation	19-61
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	62
Item 8	Financial Statements and Supplementary Data	62-107
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	108
Item 9A	Controls and Procedures	108

PART III
Item 10	Directors and Executive Officers of the Registrant	109
Item 11	Executive Compensation	109
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	109-111
Item 13	Certain Relationships and Related Transactions	111
Item 14	Principal Accountant Fees and Services	111

PART IV
Item 15	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	111-116
	Signatures	117
	Exhibits	118-124

PART I

>		ITEM 1. BUSINESS

		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 Operation.”

		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. Since November 15, 2002, these reports are made available on its website on the day such material is electronically filed with the Securities and Exchange Commission (“SEC”) or, if not reasonably practical on that day, on the first business day following electronic filing with the SEC.

		State Street has adopted Corporate Governance Guidelines, as well as written charters for each of the Executive Committee, the Examining and Audit Committee, the Executive Compensation Committee, and the Nominating and Corporate Governance Committee of the Board of Directors, and a Code of Ethics for Financial Officers, a Standard of Conduct for Directors, and a Standard of Conduct at State Street for employees. Each of these documents is posted on State Street’s website at www.statestreet.com, and each is available in print to any stockholder who requests it by writing to the Office of the Secretary, State Street Corporation, 225 Franklin Street, Boston, Massachusetts 02110.

>		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 $9.4 trillion of assets under custody and $1.1 trillion of assets under management at year-end 2003, 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 25 that appears in the Notes to the Consolidated Financial Statements in Part II, Item 8, “Financial Statements and Supplementary Data.”

		Services are provided from 25 offices in the United States, and from offices in Australia, Austria, Belgium, Canada, Cayman Islands, Chile, France, Germany, Ireland, Italy, Japan, Luxembourg, Netherlands, Netherlands Antilles, New Zealand, People’s Republic of China, Singapore, South Korea, Switzerland, Taiwan, Thailand, 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 2003, 85% of State Street’s total revenue, excluding the gains on the sales of State Street’s Private Asset Management and Corporate Trust businesses, comprised revenue from Investment Servicing. The remaining 15% comprised revenue from Investment Management. 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 Operation” 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, 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 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, 2003, State Street had 19,850 employees, of whom 19,387 were full-time.

>		COMPLETION OF THE SALE OF THE PRIVATE ASSET MANAGEMENT BUSINESS

		On October 31, 2003, State Street completed the sale of its Private Asset Management business to U.S. Trust. Under the terms of the agreement, the transaction was valued at $365 million, about five percent of which is subject to the successful transition of the business over the subsequent 16 months. The Corporation recorded a pre-tax gain of $285 million from the transaction, or $.56 in diluted earnings per share, after providing for $62 million of exit and other associated costs in the fourth quarter. Exit costs associated with the sale primarily consisted of occupancy costs of $23 million and transaction costs of $6 million. Other costs associated with the transaction consisted of incentive compensation for general corporate use of $25 million. Additional divestiture costs to transition the business are measured at fair value and recognized in the future periods in which the liability is incurred. Divestiture costs of $7 million were recorded for the year ended December 31, 2003. State Street expects additional divestiture costs of $13 million related to this sale.

>		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 (“GSS”) business of Deutsche Bank AG for a premium of $1.1 billion. Separate closings for the acquisitions of business units in Italy and Austria were held on July 1, 2003 and July 31, 2003, respectively, upon receipt of applicable regulatory approvals. The purchase price is subject to adjustments based upon performance of the acquired business for the year following the closing. State Street may make additional payments of up to an estimated €360 million that will be recorded as an adjustment to the goodwill acquired; however, State Street anticipates that the actual payment will be much less.

		In January 2003, the Corporation issued equity, equity-related and capital securities under an existing shelf registration statement. State Street issued $283 million, or 7,153,000 shares of common stock, $345 million, or 1,725,000 units of SPACES^SM(see Note 10 of the Notes to the Consolidated Financial Statements), and $345 million of floating-rate, medium-term capital securities due 2008 (see Note 9 of the Notes to the Consolidated Financial Statements). Proceeds, net of issuance costs, of $595 million from these security issuances were used to partially finance the acquisition of the GSS business. The remainder of the purchase price was financed using existing resources.

		In connection with the acquisition, approximately 2,800 employees of Deutsche Bank became employees of State Street. State Street expects to reduce this overall workforce, primarily in the United States, by approximately 1,000 employees. State Street incurred $103 million of merger and integration costs for

		2003. These one-time expenses consisted primarily of costs for employee retention, systems conversion costs and professional services. As of December 31, 2003, State Street had accrued restructuring costs of $173 million included in its Consolidated Statement of Condition. State Street expects the majority of these costs to be paid by June 30, 2004.

>		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 premium received on the sale was $725 million, $75 million of which was placed in escrow pending the successful transition of the business. Exit costs in 2002 associated with the sale totaled approximately $118 million, and other associated costs were $37 million. The after-tax gain, net of exit and other associated costs recorded in 2002, totaled approximately $296 million, or $.90 in earnings per share. On December 31, 2003, State Street recorded a $60 million gain, net of associated costs, on the final settlement of the escrow.

>		REGULATION AND SUPERVISION

		GENERAL 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 do 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.

		CAPITAL ADEQUACY Bank holding companies, such as State Street, are subject to Federal Reserve Board minimum risk-based capital and leverage ratio guidelines. At December 31, 2003, State Street’s consolidated Tier 1 and total risk-based capital ratios were 14.0% and 15.8%, 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 Operation” under the caption “Liquidity, Contractual Obligations and Commercial Commitments, and Capital,” and to Note 12 in the

		Notes to the 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, 2003. 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.

		The Basel Committee on Banking Supervision is in the process of developing a new proposed capital adequacy framework (“the New Accord” or “Basel II”). The New Accord is expected to be finalized by mid-2004 and implemented by year-end 2006. In August 2003, the U.S. Banking and Thrift regulatory agencies (“U.S. regulators”) released for industry comment an Advance Notice of Proposed Rulemaking articulating their current views of the proposed framework for implementing Basel II. The U. S. regulators have indicated that mandatory compliance will be required for large, internationally active U.S. institutions. It is anticipated that the Corporation will be subject to these rules. In preparation for compliance, the Corporation has developed a comprehensive implementation program to address monitoring the status and progress of Basel II, developing implementation requirements, and assessing the potential impact of Basel II on the operating results of the Corporation.

		SUBSIDIARIES 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 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-affiliated 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.

		Most of State Street’s international operations are conducted pursuant to Federal Reserve Board Regulation K through State Street Bank’s Edge corporation subsidiaries or through international branches of State Street Bank. An Edge corporation is a corporation organized under federal law that, in general, conducts foreign business activities. With the approval of the Federal Reserve Board, State Street Bank may invest up to 20 percent of its capital and surplus in its Edge corporation subsidiaries. In connection with the recent Deutsche Bank transaction (see “Acquisition of Substantial Parts of the Global Securities Services Business of Deutsche Bank AG”), State Street Bank received approval to raise its investment in its Edge corporation subsidiaries to close to the maximum amount permitted by law.

		State Street historically has generally found it preferable from an operational and financial standpoint to expand abroad through its Edge corporation subsidiaries. However, 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 without being subject to the 20 percent investment limitation. State Street cannot predict with certainty the impact on the pace of its future international expansion of having approached the Edge corporation subsidiary investment limitation. Nonetheless, in light of available alternatives, State Street does not believe that the Edge corporation investment limitation will affect materially its ability to expand internationally.

		SUPPORT OF SUBSIDIARY BANKS 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 State Street 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, 2003, State Street Bank had $1.9 billion of retained earnings available for distribution to State Street in the form of dividends. Future dividend payments of State Street 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, which may impact 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 regulation of banks and bank holding companies is 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 SEC (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 Operation” 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 SEC, including its reports on Form 10-Q and Form 8-K. The forward-looking statements contained in this Form 10-K speak only as of the time the statements were made, and the Corporation does not undertake to revise those forward-looking statements to reflect events after the date of this report.

>		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 Operation.”

		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.

	2003							2002							2001
	Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate

(Dollars in millions; taxable equivalent) Years ended December 31,

ASSETS
Interest-bearing deposits with banks	$	22,538	$	474		2.10	%	$	24,341	$	622		2.56	%	$	20,548	$	821		3.99	%
Securities purchased under resale agreements		13,152		164		1.25			21,070		370		1.76			19,768		798		4.04
Federal funds sold		393		4		1.12			516		9		1.66			716		27		3.84
Trading account assets⁽²⁾		819		19		2.37			1,040		31		2.95			1,190		55		4.61
INVESTMENT SECURITIES:
U.S. Treasury and federal agencies		20,046		409		2.04			12,051		404		3.35			8,434		447		5.30
State and political subdivisions⁽²⁾		2,009		86		4.26			1,801		97		5.42			1,653		107		6.47
Other investments		9,049		259		2.87			7,323		287		3.93			7,258		385		5.31

Commercial and financial loans		3,402		61		1.79			3,022		82		2.70			4,130		133		3.22
Lease financing⁽²⁾		2,166		114		5.26			2,083		133		6.40			1,951		149		7.66

Total interest-earning assets⁽²⁾		73,574		1,590		2.16			73,247		2,035		2.78			65,648		2,922		4.45
Cash and due from banks		1,596							1,165							1,271
Other assets		7,503							4,673							4,406

Total assets	$	82,673						$	79,085						$	71,325


LIABILITIES AND STOCKHOLDERS’ EQUITY
INTEREST-BEARING DEPOSITS:
Savings	$	1,079		6		.57		$	2,171		20		.92		$	2,845		101		3.55
Time		4,731		59		1.22			7,301		133		1.82			2,058		81		3.94
Non-U.S.		29,746		307		1.04			26,393		345		1.31			27,094		674		2.49

Total interest-bearing deposits		35,556		372		1.05			35,865		498		1.39			31,997		856		2.68

Securities sold under repurchase agreements		22,724		205		.90			23,881		356		1.49			20,426		739		3.62
Federal funds purchased		2,901		33		1.13			3,085		50		1.63			2,745		100		3.63
Other short-term borrowings		2,031		41		2.03			1,242		20		1.60			1,097		42		3.86
Long-term debt		1,810		78		4.31			1,259		71		5.68			1,218		93		7.64

Total interest-bearing liabilities		65,022		729		1.12			65,332		995		1.52			57,483		1,830		3.18

Noninterest-bearing deposits		7,359							6,141							6,929
Other liabilities		5,090							3,406							3,279
Stockholders’ equity		5,202							4,206							3,634

Total liabilities and stockholders’ equity	$	82,673						$	79,085						$	71,325

Net interest revenue			$	861						$	1,040						$	1,092

Excess of rate earned over rate paid						1.04	%						1.26	%						1.27	%
Net interest margin⁽¹⁾						1.17							1.42							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 leases 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 $51 million, $61 million and $67 million for the years ended December 31, 2003, 2002 and 2001, respectively.

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 volumes and rates have been allocated based on the proportion of change in each category.

	2003 COMPARED TO 2002									2002 COMPARED TO 2001
	Change in Volume			Change in Rate			Net (Decrease) Increase			Change in Volume			Change in Rate			Net (Decrease) Increase

(Dollars in millions; taxable equivalent) Years ended December 31,

INTEREST REVENUE RELATED TO:
Interest-bearing deposits with banks	$	(46	)	$	(102	)	$	(148	)	$	150		$	(349	)	$	(199	)
Securities purchased under resale agreements		(139	)		(67	)		(206	)		52			(480	)		(428	)
Federal funds sold		(2	)		(3	)		(5	)		(7	)		(11	)		(18	)
Trading account assets		(7	)		(5	)		(12	)		(7	)		(17	)		(24	)
INVESTMENT SECURITIES:
U.S. Treasury and federal agencies		268			(263	)		5			192			(235	)		(43	)
State and political subdivisions		12			(23	)		(11	)		9			(19	)		(10	)
Other investments		68			(96	)		(28	)		4			(102	)		(98	)
						)			)						)
Commercial and financial loans		10			(31	)		(21	)		(35	)		(16	)		(51	)
Lease financing		5			(24	)		(19	)		10			(26	)		(16	)

Total interest-earning assets		169			(614	)		(445	)		368			(1,255	)		(887	)

INTEREST EXPENSE RELATED TO:
DEPOSITS:
Savings		(10	)		(4	)		(14	)		(24	)		(57	)		(81	)
Time		(46	)		(28	)		(74	)		207			(155	)		52
Non-U.S.		43			(81	)		(38	)		(18	)		(311	)		(329	)
						)			)						)
Securities sold under repurchase agreements		(17	)		(134	)		(151	)		125			(508	)		(383	)
Federal funds purchased		(3	)		(14	)		(17	)		12			(62	)		(50	)
Other short-term borrowings		13			8			21			6			(28	)		(22	)
Long-term debt		31			(24	)		7			3			(25	)		(22	)

Total interest-bearing liabilities		11			(277	)		(266	)		311			(1,146	)		(835	)

Net interest revenue	$	158		$	(337	)	$	(179	)	$	57		$	(109	)	$	(52	)

		INVESTMENT PORTFOLIO

		Investment securities consisted of the following as of December 31:

	2003		2002		2001

(Dollars in millions)

HELD TO MATURITY (AT AMORTIZED COST):
U.S. Treasury and federal agencies	$	1,345	$	1,327	$	1,296
Other investments		272		216		147

Total	$	1,617	$	1,543	$	1,443


AVAILABLE FOR SALE (AT FAIR VALUE):
U.S. Treasury and federal agencies	$	22,748	$	15,760	$	10,248
Asset-backed securities		9,885		4,276		3,638
State and political subdivisions		1,999		2,018		1,463
Collateralized mortgage obligations		1,333		548		795
Other debt investments		310		703		572
Money market mutual funds		85		3,057		2,518
Other equity securities		238		166		104

Total	$	36,598	$	26,528	$	19,338

The maturities of debt investment securities as of December 31, 2003, and the weighted average taxable-equivalent yields were as follows:

	YEARS

	Under 1					1 to 5					6 to 10					Over 10

	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield

(Dollars in millions)

HELD TO MATURITY
(AT AMORTIZED COST):
U.S. Treasury and federal agencies	$	276		2.59	%	$	1,069		1.99	%
Other investments		237		2.60			35		1.93

Total	$	513				$	1,104


AVAILABLE FOR SALE (AT FAIR VALUE):
U.S. Treasury and federal agencies	$	7,138		1.39	%	$	12,671		2.05	%	$	1,765		4.31	%	$	1,174		5.14	%
Asset–backed securities⁽¹⁾		1,551		3.42			6,947		2.66			1,242		3.17			145		4.59
State and political subdivisions⁽¹⁾		390		2.70			791		2.55			448		4.07			370		3.56
Collateralized mortgage obligations		17		2.25			807		3.63			388		3.65			121		3.60
Other investments		213		3.44			–		–			10		4.00			87		3.07

Total	$	9,309				$	21,216				$	3,853				$	1,897


	(1)	Yields calculated for interest revenue on non-taxable investment securities 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 adjustment included in interest revenue to calculate the yields above was $24 million for the year ended December 31, 2003.

		LOAN PORTFOLIO

		U.S. and non-U.S. loans as of December 31, and average loans outstanding for the years ended December 31, were as follows:

	2003		2002		2001		2000		1999

(Dollars in millions)

U.S.:
Commercial and financial	$	2,344	$	1,578	$	2,479	$	2,502	$	1,908
Lease financing		395		403		413		433		418

Total U.S.		2,739		1,981		2,892		2,935		2,326

NON-U.S.:
Commercial and industrial		424		289		725		837		514
Lease financing		1,858		1,719		1,639		1,364		1,124
Banks and other financial institutions		–		177		71		119		311
Other		–		8		14		18		18

Total non-U.S.		2,282		2,193		2,449		2,338		1,967

Total loans	$	5,021	$	4,174	$	5,341	$	5,273	$	4,293