<PAGE>
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, 1996
[ ] 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 BOSTON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COMMONWEALTH OF MASSACHUSETTS 04-2456637
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) 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)
----------------------
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 [ ]
THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING ON APRIL
30, 1996 WAS 81,025,691.
<PAGE>
STATE STREET BOSTON CORPORATION
Table of Contents
Page
Part I. Financial Information
Part I. Item 1. Financial Statements
Consolidated Statement of Income 1
Consolidated Statement of Condition 2
Consolidated Statement of Cash Flows 3
Consolidated Statement of Changes in Stockholders' Equity 4
Notes to Consolidated Financial Statements 5-10
Independent Accountants' Review Report 11
Part I. Item 2.
Management's Discussion and Analysis of Financial Condition 12-20
and Results of Operations
Part II. Other Information
Part II. Item 1.
Legal Proceedings 21
Part II. Item 2.
Changes in Securities 21
Part II. Item 3.
Defaults Upon Senior Securities 21
Part II. Item 4.
Submission of Matters to a Vote of Security Holders 21
Part II. Item 5.
Other Information 21
Part II. Item 6.
Exhibits and Reports on Form 8-K 21
Signatures 22
Exhibits 23-25
<PAGE>
PART I. ITEM 1. FINANCIAL STATEMENTS
STATE STREET BOSTON CORPORATION
CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995
-------- --------
INTEREST REVENUE
Deposits with banks $ 88,048 $ 63,940
Investment securities:
U.S. Treasury and Federal agencies 48,114 73,156
State and political subdivisions 13,767 12,265
Other investments 28,132 35,673
Loans 65,089 57,107
Securities purchased under resale agreements,
securities borrowed and Federal funds sold 99,579 70,768
Trading account assets 3,289 5,845
-------- --------
Total interest revenue 346,018 318,754
INTEREST EXPENSE
Deposits 110,571 102,736
Other borrowings 102,141 113,427
Long-term debt 2,117 2,140
-------- --------
Total interest expense 214,829 218,303
-------- --------
Net interest revenue 131,189 100,451
Provision for loan losses 2,000 2,000
-------- --------
Net interest revenue after
provision for loan losses 129,189 98,451
FEE REVENUE
Fiduciary compensation 233,916 186,161
Other 72,751 75,574
-------- --------
Total fee revenue 306,667 261,735
-------- --------
REVENUE BEFORE OPERATING EXPENSES 435,856 360,186
OPERATING EXPENSES
Salaries and employee benefits 180,954 150,456
Occupancy, net 24,962 20,193
Equipment 32,338 29,520
Other 89,614 74,644
-------- --------
Total operating expenses 327,868 274,813
-------- --------
Income before income taxes 107,988 85,373
Income taxes 38,238 31,037
-------- --------
NET INCOME $ 69,750 $ 54,336
======== ========
EARNINGS PER SHARE
Primary $ .85 $ .66
Fully diluted .84 .65
AVERAGE SHARES OUTSTANDING (in thousands)
Primary 82,261 82,890
Fully diluted 82,896 83,488
CASH DIVIDENDS DECLARED PER SHARE $ .18 $ .16
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATE STREET BOSTON CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
(UNAUDITED)
March 31, December 31,
(DOLLARS IN THOUSANDS) 1996 1995
------------ ------------
ASSETS
Cash and due from banks $ 1,523,903 $ 1,421,941
Interest-bearing deposits with banks 8,041,697 5,975,178
Securities purchased under resale agreements
and securities borrowed 4,029,285 5,406,619
Federal funds sold 152,000 347,500
Trading account assets 404,923 503,839
Investment securities:
Held to maturity 837,378 824,399
Available for sale 6,166,148 5,535,364
------------ ------------
Total investment securities 7,003,526 6,359,763
Loans 4,204,237 3,986,142
Allowances for loan losses (65,716) (63,491)
------------ ------------
Net loans 4,138,521 3,922,651
Premises and equipment 458,233 467,588
Customers' acceptance liability 29,371 57,472
Accrued income receivable 409,795 392,074
Other assets 1,037,920 930,562
------------ ------------
TOTAL ASSETS $ 27,229,174 $ 25,785,187
============ ============
LIABILITIES
Deposits:
Noninterest-bearing $ 4,750,411 $ 5,082,064
Interest-bearing:
Domestic 2,103,762 2,150,697
Foreign 10,883,520 9,414,458
------------ ------------
Total deposits 17,737,693 16,647,219
Federal funds purchased 231,379 467,305
Securities sold under repurchase agreements 5,458,572 5,120,950
Other short-term borrowings 526,140 443,203
Notes payable 124,606 175,218
Acceptances outstanding 29,371 57,387
Accrued taxes and other expenses 526,681 562,304
Other Liabilities 908,305 597,501
Long-term debt 126,346 126,576
------------ ------------
TOTAL LIABILITIES 25,669,093 24,197,663
STOCKHOLDERS' EQUITY
Preferred stock, no par: authorized 3,500,000;
issued none
Common stock, $1 par: authorized 112,000,000;
issued 82,694,000 and 82,695,000 82,694 82,695
Surplus 36,819 40,090
Retained earnings 1,519,552 1,465,007
Net unrealized gain(loss) on
available-for-sale securities (4,225) 12,688
Treasury stock (at cost, 1,647,000 and
307,000 shares) (74,759) (12,956)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,560,081 1,587,524
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,229,174 $ 25,785,187
============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATE STREET BOSTON CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 69,750 $ 54,336
Noncash charges for depreciation, amortization, provision for
loan losses and foreclosed properties, and deferred income taxes 115,239 49,524
----------- -----------
Net income adjusted for noncash charges 184,989 103,860
Adjustments to reconcile to net cash provided (used)
by operating activities:
Securities (gains)losses, net (692) (3,546)
Net change in:
Trading account assets 98,916 327,912
Accrued income receivable (17,721) 16,327
Accrued income taxes and other expenses (51,036) (4,739)
Other, net 201,711 (134,913)
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 416,167 304,901
----------- -----------
INVESTING ACTIVITIES
Payments for purchases of:
Held-to maturity securities (284,031) (434,236)
Available-for-sale securities (1,727,555) (279,584)
Lease financing assets (137,306) (147,777)
Premises and equipment (17,478) (34,511)
Proceeds from:
Maturities of held-to-maturity securities 271,621 581,087
Maturities of available-for-sale securities 889,493 109,154
Sales of available-for-sale securities 120,248 480,464
Principal collected from lease financing 38,310 12,862
Net (payments for) proceeds from:
Interest-bearing deposits with banks (2,066,519) (218,475)
Federal funds sold, resale agreements and securities borrowed 1,572,834 (326,323)
Loans (163,657) 1,477
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (1,504,040) (255,862)
----------- -----------
FINANCING ACTIVITIES
Proceeds from issuance of:
Notes payable 87,588 75,000
Nonrecourse debt for lease financing 85,007 121,467
Common and treasury stock 4,696 1,426
Payments for:
Maturities of notes payable (136,868)
Nonrecourse debt for lease financing (39,038) (16,295)
Long-term debt (229) (208)
Cash dividends (14,588) (13,207)
Purchase of common stock (71,925)
Net proceeds from (payments for):
Deposits 1,090,474 (430,975)
Short-term borrowings 184,718 496,516
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,189,835 233,724
----------- -----------
NET INCREASE (DECREASE) 101,962 282,763
Cash and due from banks at beginning of period 1,421,941 1,097,563
----------- -----------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 1,523,903 $ 1,380,326
=========== ===========
SUPPLEMENTAL DISCLOSURE
Interest paid $ 203,591 $ 214,111
Income taxes paid 31,228 7,495
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATE STREET BOSTON CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN(LOSS) ON
COMMON RETAINED AVAILABLE-FOR- TREASURY
(DOLLARS IN THOUSANDS) STOCK SURPLUS EARNINGS SALE SECURITIES STOCK TOTAL
-------- -------- ----------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 $ 82,447 $ 37,160 $ 1,273,369 $ (55,840) $ - $ 1,337,136
Net Income 54,336 54,336
Cash dividends declared-
$.16 per share (13,207) (13,207)
Issuance of common stock-
1,440,000 net shares 99 1,484 1,583
Foreign currency translation 5,066 5,066
Change in net unrealized gain (loss)
on available-for-sale securities 29,728 29,728
-------- -------- ----------- --------- ---------- -----------
BALANCE AT MARCH 31, 1995 $ 82,546 $ 38,644 $ 1,319,564 $ (26,112) $ - $ 1,414,642
======== ======== =========== ========= ========== ===========
BALANCE AT DECEMBER 31, 1995 $ 82,695 $ 40,090 $ 1,465,007 $ 12,688 (12,956) $ 1,587,524
Net income 69,750 69,750
Cash dividends declared-
$.18 per share (14,588) (14,588)
Issuance of common stock (1) (1)
Common stock acquired-
1,583,800 shares (71,925) (71,925)
Issuance of treasury stock-
243,831 shares (3,271) 10,122 6,851
Foreign currency translation (617) (617)
Change in net unrealized gain(loss)
on available-for-sale securities (16,913) (16,913)
-------- -------- ----------- --------- ---------- -----------
BALANCE AT MARCH 31, 1996 $ 82,694 $ 36,819 $ 1,519,552 $ (4,225) $ (74,759) $ 1,560,081
======== ======== =========== ========= ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATE STREET BOSTON CORPORATION
PART I. ITEM 1. FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
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 predominant 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 consolidated financial statements include the accounts of State Street and
its subsidiaries, including its principal subsidiary, State Street Bank and
Trust Company. 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 Statement of Condition caption, "Cash and due
from banks." For the three months ended March 31, 1996 and 1995, long-term debt
converted into common stock was $10,000 and $15,000, respectively.
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" was
adopted by State Street effective January 1, 1996. SFAS No. 121 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. The adoption of
SFAS No. 121 did not have a material impact on the financial statements of State
Street.
SFAS No. 122, "Accounting for Mortgage Servicing Rights" was adopted by State
Street effective January 1, 1996. SFAS No. 122 requires institutions to
recognize rights to service mortgage loans for others as separate assets,
regardless of how the servicing rights are acquired. In addition, SFAS No. 122
addresses how mortgage servicing rights are to be assessed for impairment based
on their fair value. Prior to January 1, 1996, mortgage servicing rights were
recorded at acquisition cost. The adoption of SFAS No. 122 did not have a
material impact on the financial statements of State Street.
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 and will adopt the new disclosure
requirements for the year ended December 31, 1996.
In the opinion of management, all adjustments consisting of normal recurring
accruals which are necessary for a fair presentation of the financial position
of State Street and subsidiaries at March 31, 1996 and December 31, 1995, and
its cash flows for the three months ended March 31, 1996 and 1995, and the
consolidated results of its operations for the three months ended March 31, 1996
and 1995 have been made. These statements should be read in conjunction with the
financial statements, notes and other information included in State Street's
latest annual report on Form 10-K.
<PAGE>
NOTE B - INVESTMENT SECURITIES
Investment securities consisted of the following at March 31, 1996:
<TABLE>
<CAPTION>
Amortized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
--------- ----- ------ -----
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Treasury and Federal agencies $ 837,378 $ 2,937 $ 2,989 $ 837,326
----------- ------- ------- -----------
AVAILABLE FOR SALE
U.S. Treasury and Federal agencies $ 2,794,092 $ 8,664 $ 9,328 $ 2,793,428
State and political subdivisions 1,285,450 5,813 7,621 1,283,642
Asset-backed securities 1,705,844 2,631 15,285 1,693,190
Other investments 388,576 7,472 160 395,888
----------- ------- ------- -----------
Total $ 6,173,962 $24,580 $32,394 $ 6,166,148
=========== ======= ======= ===========
Investment securities consisted of the following at December 31, 1995:
<CAPTION>
Amortized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
--------- ----- ------ -----
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Treasury and Federal agencies $ 824,399 $ 5,217 $ 483 $ 829,133
=========== ------- ------- -----------
AVAILABLE FOR SALE
U.S. Treasury and Federal agencies $ 2,270,695 $17,579 $ 4,292 $ 2,283,982
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
----------- ------- ------- -----------
Total $ 5,514,265 $42,387 $21,288 $ 5,535,364
=========== ======= ======= ===========
</TABLE>
Held-to-maturity securities are reported at amortized cost; and
available-for-sale securities are reported at fair value on the statement of
condition.
During the three months ended March 31, 1996, gains of $3,293,000 and losses of
$2,601,000 were realized on sales of available-for-sale securities of
$120,248,000. During the three months ended March 31, 1995, gains of $3,737,000
and losses of $191,000 were realized on sales of available-for-sale securities
of $480,464,000.
NOTE C - ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated probable credit losses. Management's periodic
evaluation of the adequacy of the allowance for loan losses is based on State
Street's past loan loss experience, known and inherent risks in the portfolio,
current economic conditions and adverse situations that may affect the borrowers
ability to repay, timing of future payments, estimated value of any underlying
collateral, and the performance of individual credits in relation to contract
terms and other relevant factors. 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.
Changes in the allowance for loan losses were as follows:
Three Months Ended
(Dollars in thousands) March 31,
------------------------
1996 1995
------- -------
Balance at beginning of period $63,491 $58,184
Provision for loan losses 2,000 2,000
Loan charge-offs (308) (995)
Recoveries 533 174
------- -------
Balance at end of period $65,716 $59,363
======= =======
NOTE D - INCOME TAXES
The provision for income taxes included in the Consolidated Statement of Income
is comprised of the following:
Three Months Ended
(Dollars in thousands) March 31,
-------------------------
1996 1995
------- --------
Current $10,825 $ 12,149
Deferred 27,413 18,888
------- --------
Total provision $38,238 $ 31,037
======= ========
The effective tax rate for the three-months ended March 31, 1996 was
approximately one percent less than the rate for 1995 due primarily to
nondeductible merger expenses associated with the pooling-of-interests
acquisition during the first quarter 1995.
NOTE E - FEE REVENUE - OTHER
The Other category of fee revenue consisted of the following:
Three Months Ended
(Dollars in thousands) March 31,
-------------------------
1996 1995
------- -------
Foreign exchange trading $33,622 $36,462
Service fees 17,542 12,437
Processing service fees 10,747 17,665
Trading account profits(losses) 1,449 (384)
Securities gains,net 692 3,546
Other 8,699 5,848
------- -------
Total fee revenue - other $72,751 $75,574
======= =======
NOTE F - OPERATING EXPENSES - OTHER
The Other category of operating expenses consisted of the following:
Three Months Ended
(Dollars in thousands) March 31,
-------------------------
1996 1995
------- -------
Contract services $35,023 $27,419
------- -------
Professional services 12,614 12,873
Advertising and sales promotion 8,805 6,073
Postage, forms and supplies 6,656 5,978
Telecommunications 5,969 6,094
Other 20,547 16,207
------- -------
Total operating expenses - other $89,614 $74,644
======= =======
NOTE G - 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.
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. State Street
uses derivative financial instruments in trading and balance sheet management
activities.
The following table summarizes the contractual or notional amounts of
significant derivative financial instruments held or issued by State Street at:
March 31, December 31,
(Dollars in millions) 1996 1995
-------- ------------
TRADING:
Interest rate contracts:
Swap agreements $ 461 $ 420
Options and caps purchased 25 25
Options and caps written 36 36
Futures sold 1,410 1,050
Options on futures written 455 800
Options on futures purchased 35 1,000
Foreign exchange contracts:
Forward, swap and spot 66,995 54,965
Options purchased 273 20
Options written 70 43
BALANCE SHEET MANAGEMENT:
Interest rate contracts:
Swap agreements 233 217
Options and caps purchased 50 50
FINANCIAL INSTRUMENTS HELD OR ISSUED FOR TRADING
The following table represents the fair value of financial instruments held or
issued for trading purposes as of:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------------------------- ----------------------------
(Dollars in millions) Average Average
FOREIGN EXCHANGE CONTRACTS: Fair Value Fair Value Fair Value Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Contracts in a receivable position $518 $658 $539 $751
Contracts in a payable position 532 647 466 704
OTHER FINANCIAL INSTRUMENT CONTRACTS:
Contracts in a receivable position 4 4 4 2
Contracts in a payable position 2 3 3 3
</TABLE>
The above amounts have been reduced by offsetting balances with the counterparty
where a master netting agreement exists. Contracts in a receivable position are
shown in Other Assets on the balance sheet and Contracts in a payable position
are shown in Other Liabilities.
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:
<PAGE>
March 31, December 31,
(Dollars in millions) 1996 1995
--------- ------------
Loan commitments $ 4,884 $ 3,626
Standby letters of credit 1,368 1,286
Letters of credit 185 179
Indemnified securities lent 33,276 28,949
NOTE H - COMMITMENTS AND CONTINGENT LIABILITIES
State Street provides custody, 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 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 March 31, 1996 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.
<PAGE>
Independent Accountants' Review Report
The Stockholders and Board of Directors
State Street Boston Corporation
We have reviewed the accompanying consolidated statement of condition of State
Street Boston Corporation as of March 31, 1996, and the related consolidated
statements of income, cash flows and changes in stockholders' equity for the
three month periods ended March 31, 1996 and 1995. These financial statements
are the responsibility of the Corporation's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of condition of State Street Boston
Corporation as of December 31, 1995, and the related consolidated statements of
income, cash flows and changes in stockholders' equity for the year then ended
(not presented herein), and in our report dated January 10, 1996, we expressed
an unqualified opinion on those consolidated financial statements.
ERNST & YOUNG LLP
Boston, Massachusetts
April 12, 1996
<PAGE>
STATE STREET BOSTON CORPORATION
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SUMMARY
Earnings per fully diluted share were $.84, an increase of 29% from $.65 in the
first quarter of 1995. Net income was $69.7 million, up from $54.3 million a
year ago. The increase reflected revenue growth of 21% and operating expenses
growth of 19%. Growth from customers, the installation of new business, and
favorable market conditions contributed to a strong first quarter for State
Street. Return on stockholders' equity was 17.7%.
<TABLE>
<CAPTION>
Condensed Income Statement
Taxable Equivalent Basis
(Dollars in millions, except per share data)
Three Months Ended
March 31,
----------------------------------------
1996 1995 Change %
------ ------ -------- ---
<S> <C> <C> <C> <C>
Fee revenue $306.7 $261.7 $ 45.0 17
Interest revenue 354.0 326.7 27.3 8
Interest expense 214.8 218.3 (3.5) (2)
------ ------ -------
Net interest revenue 139.2 108.4 30.8 28
Provision for loan losses 2.0 2.0 - -
------ ------ -------
Net interest revenue after
provision for loan losses 137.2 106.4 30.8 29
------ ------ ------
Total revenue 443.9 368.1 75.8 21
Operating expenses 327.9 274.8 53.1 19
------ ------ ------
Income before taxes 116.0 93.3 22.7 24
Income taxes 38.3 31.0 7.3 24
Taxable equivalent adjustment 8.0 8.0 - -
-------- -------- ------
Net income $ 69.7 $ 54.3 $ 15.4 28
====== ====== ======
Earnings Per Share
Primary $ .85 $ .66 $ .19 29
Fully diluted .84 .65 .19 29
($ and % change based on dollars in thousands)
</TABLE>
<PAGE>
TOTAL REVENUE
Total revenue for the quarter was $443.9 million, up $75.8 million, or 21%, from
a year ago due to strong growth in both fiduciary compensation and net interest
revenue.
FEE REVENUE
Fee revenue, which comprised 69% of total revenue, was $306.7 million, up $45.0
million, or 17%, from the first quarter of 1995. The largest component of fee
revenue is fiduciary compensation, which is derived from accounting, custody,
information, recordkeeping, investment management, and trustee services.
Fiduciary compensation was $233.9 million, up $47.8 million, or 26%, from a year
ago due to substantial growth in all businesses.
Fiduciary compensation from servicing mutual funds reflected additional and
appreciated assets invested worldwide, significant new business including mutual
fund administration and offshore fund services, new funds, and an increase in
trades. Investment management revenue grew due to significant business growth
and favorable securities markets, with substantial growth in active and passive
equity products investing both in the United States and non-U.S. markets.
Fiduciary compensation from services for pension plans increased around the
world. In the United States, fiduciary compensation increased due to securities
lending, installation of new business, asset growth and additional business from
existing customers. Outside the United States, fiduciary compensation grew from
the installation of significant amounts of new business and additional business
from existing customers.
Assets under custody at March 31, 1996 were $2.4 trillion, up 31% from a year
ago. Approximately one-half of the increase was due to the net market impact of
higher securities values. Assets under management were $252 billion, up 40% from
the first quarter of last year. Approximately one-third of the increase in
assets under management was due to market appreciation.
Service fees for the quarter were $17.5 million, up $5.1 million, or 41%, from
the same quarter a year ago due to strength in fees from loans, investment
banking, and brokerage activity.
Strength in fiduciary compensation and service fees was partially offset by
lower securities gains, foreign exchange revenue and processing service fees.
Net securities gains were down $2.8 million from the same quarter a year ago.
Foreign exchange revenue was $33.6 million, down $2.8 million, or 8%, from the
prior year on lower volatility in the currency markets, partially offset by the
impact of substantially higher volume.
Processing service fees were $10.7 million, down $6.9 million. Approximately
half of the decrease was due to the second quarter sale of a non-strategic
credit card replacement business. Also, lower business volumes in the unclaimed
securities business contributed to the decrease in revenue against a very good
quarter last year.
Other fee revenue was up $4.7 million, or 86%, from the same quarter a year ago.
Included was a gain of $3.1 million from the sale of a block of business
servicing unit investment trusts at IFTC, favorable trading account profits, and
favorable currency translation on foreign currency denominated bank notes
issued.
NET INTEREST REVENUE
Taxable equivalent net interest revenue was $139.2 million, up $30.8 million, or
28%, from a year ago due to wider interest rate spreads, balance sheet growth,
and a more favorable funding mix due to increased customer deposits. As U.S.
market interest rates dropped from a year ago, liability costs declined faster
than asset yields, increasing the spread between interest rates earned and paid
by 31 basis points.
Average interest-earning assets grew $2.9 billion, or 13%. This balance sheet
growth was driven by additional short-term cash from customers in conjunction
with their investment activities.
Foreign deposits were up $1.7 billion, or 21%, to $9.9 billion, mostly in
transaction accounts, reflecting increased cross-border investing activity by
our customers. Noninterest-bearing deposits increased $.6 billion, or 14%, over
the same period a year ago. The net interest margin increased from 1.98% to
2.23%.
Three Months Ended
March 31,
-----------------------------------------
1996 1995
----------------- -----------------
Average Average
Balance Rate Balance Rate
------- ---- ------- ----
(Dollars in millions)
Interest-earning assets $25,094 5.67% $22,240 5.96%
Interest-bearing liabilities 20,467 4.22 18,366 4.82
---- ----
Excess of rates earned
over rates paid 1.45% 1.14%
==== ====
Net Interest Margin 2.23% 1.98%
==== ====
OPERATING EXPENSES
Operating expenses of $327.9 million were up $53.1 million, or 19%, from the
first quarter of 1995. Salary and employee benefits were $181.0 million, up
$30.5 million, or 20%, due primarily to performance-based incentive compensation
supporting business growth. Occupancy expense was $25.0 million, an increase of
$4.8 million, or 24%, due to a planned rate increase and additional leased
space. All other expenses were $89.6 million, up $15.0 million, or 20%, due to
the higher level of business activities and related increase in expenses, such
as subcustodian fees and other externally purchased services.
CREDIT QUALITY
At March 31, 1996, total loans were $4.2 billion, 15% of the balance sheet. In
the first quarter, the provision for loan losses charged against income was $2.0
million, the same as a year ago. During the quarter, the allowance for loan
losses increased from $63.5 million to $65.7 million.
LOAN RATIOS 1996 1995
---- ----------------------------------
1Q 4Q 3Q 2Q 1Q
---- ---- ---- ---- ----
Allowance to ending loans 1.56% 1.59% 1.70% 1.70% 1.82%
Net recoveries (charge-offs)
to average loans .02 (.11) .03 (.13) (.10)
Non-performing loans to
ending loans .33 .39 .62 .75 .69
During the first quarter, non-performing loans declined from $15.5 million to
$14.0 million. Net recoveries were $.2 million, versus net charge-offs of $.8
million in the year-earlier period.
TAXES
The effective tax rate for the three months ended March 31, 1996 was
approximately one percent less than the rate for 1995 due primarily to
nondeductible merger expenses associated with the pooling-of-interests
acquisition during the first quarter 1995.
LINES OF BUSINESS
State Street classifies its operations into three lines of business - Financial
Asset Services, Investment Management and Commercial Lending.
Financial Asset Services offers primarily 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. Fiduciary compensation revenue is derived from
services related to State Street's $2.4 trillion of assets under custody and
$295 billion of bonds under trusteeship. In addition to fiduciary compensation,
certain financial asset services customers generate other types of fee revenue,
particularly foreign exchange trading revenue, and net interest revenue.
Noninterest-bearing and foreign deposits from these customers comprise a
significant amount of State Street's total deposits available for investment.
These customers also invest substantial short-term funds with State Street.
Revenue from investing these deposits and funds is reported as interest revenue.
Investment Management is comprised of the business components that manage $252
billion of institutional and personal financial assets worldwide. Fee revenue is
derived from a broad array of products that focus on quantitative equity
management, both passive and active, and money market funds.
Commercial Lending services are provided to commercial and financial customers.
State Street's lending activities are focused on middle-market companies in the
northeastern United States, as well as specialized industries nationwide.
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, and other corporate expenses.
Line-of-business 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
other companies.
The following is a summary of line-of-business results for the three months
ended March 31:
<TABLE>
<CAPTION>
Financial Investment Commercial
(Taxable equivalent basis, Asset Services Management Lending Corporate
dollars in millions) ---------------- ------------- -------------- ---------------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fee revenue $243.6 $214.7 $52.0 $38.5 $ 11.6 $ 8.4 $ (.6) $ .2
Net interest revenue 97.6 74.4 5.7 2.0 36.5 32.5 (.5) (.5)
Provision for loan losses .1 .1 1.9 1.9
------ ------ ----- ----- ------ ----- ----- ------
Total revenue 341.1 289.0 57.7 40.5 46.2 39.0 (1.1) (.3)
Operating expenses 258.2 226.7 39.0 24.3 19.7 18.4 11.1 5.4
------ ------ ------ ----- ------ ----- ----- ------
Income before income
taxes 82.9 62.3 18.7 16.2 26.5 20.6 (12.2) (5.7)
Income taxes 32.3 25.7 8.3 7.8 11.0 8.8 (5.5) (3.2)
------ ------ ------ ----- ------ ----- ----- ------
Net income $ 50.6 $ 36.6 $10.4 $ 8.4 $ 15.5 $11.8 $(6.7) $(2.5)
====== ====== ====== ===== ====== ===== ===== =====
Percentage Contribution 73% 68% 15% 15% 22% 22% (10)% (5)%
Average Assets $25,264 $22,562 $ 21 $ 15 $2,965 $2,516
</TABLE>
State Street's line-of-business activities have distinct revenue
characteristics. Further understanding of line-of-business results can be
ascertained from information on fee revenue and net interest revenue, as
discussed in earlier sections describing the operations of State Street. The
significant revenue and operating expense items applicable to the respective
lines of business are provided below.
Financial Asset Services contributed 73% of net income for the first three
months of 1996. Net income was $50.6 million, an increase of $14.0 million, or
38%, from $36.6 million in the same period a year ago, due to strong growth in
both fee revenue and net interest revenue. Fee revenue increased $28.9 million,
or 13%, due to substantial growth in fiduciary compensation in all businesses.
Net interest revenue increased $23.2 million, or 31% due to wider interest rate
spreads, balance sheet growth, and a more favorable funding mix due to increased
customer deposits. Operating expenses increased $31.5 million, or 14%, from the
same period a year ago, on volume-related expenses such as subcustodian fees and
other externally purchased services.
Investment Management contributed 15% of net income for the first three months
of 1996. Net income was $10.4 million, an increase of $2.0 million, or 24% from
the same period a year ago. Revenue from State Street Global Advisors, our
institutional investment management business, grew due to significant business
growth and favorable securities markets, with substantial growth in active and
passive equity products investing both in the United States and non-U.S.
markets.
Commercial Lending contributed 22% of net income for the first three months of
1996. Net income was $15.5 million, an increase of $3.7 million, or 31% from the
same period a year ago reflecting loan growth in traditional middle market
lending, international trade banking and specialized lending.
Corporate items reduced net income by $6.7 million, mainly on increased
operating expenses related to higher incentive compensation, driven by business
growth, and increased severance and occupancy expenses.
ACCOUNTING CHANGES
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" was
adopted by State Street effective January 1, 1996. SFAS No. 121 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. The adoption of
SFAS No. 121 did not have a material impact on the financial statements of State
Street.
SFAS No. 122, "Accounting for Mortgage Servicing Rights" was adopted by State
Street effective January 1, 1996. SFAS 122 requires institutions to recognize
rights to service mortgage loans for others as separate assets, regardless of
how the servicing rights are acquired. In addition, SFAS No. 122 addresses how
mortgage servicing rights are to be assessed for impairment based on their fair
value. Prior to January 1, 1996, mortgage servicing rights were recorded at
acquisition cost. The adoption of SFAS No. 122 did not have a material impact on
the financial statements of State Street.
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 and will adopt the new disclosure
requirements for the year ended December 31, 1996.
CAPITAL AND LIQUIDITY
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. In the first quarter, the internal capital generation
rate was 14.0%.
State Street's capital and leverage ratios exceeded the regulatory guidelines as
follows:
Minimum
March 31, December 31, Regulatory
1996 1995 Guidelines
(Dollars in millions) --------- ------------ ----------
Risk-based capital ratios:
Tier 1 capital 12.7% 14.0% 4.0%
Total capital 13.2 14.5 8.0
Leverage ratio 5.3 5.6 3.0
Tier 1 capital $ 1,491 $ 1,507
Total capital 1,544 1,563
Risk-adjusted assets:
On-balance sheet assets $ 9,230 $ 8,409
Off-balance sheet assets 2,480 2,339
-------- --------
Total risk-adjusted assets $ 11,710 $ 10,748
======== ========
State Street intends to grow the balance sheet commensurate with growth in
equity, maintaining capital ratios at State Street Bank which qualify for the
"well-capitalized" designation, including a leverage ratio of 5% or more. The
Corporation's objectives are to optimize the use of the balance sheet and to
fully service customers, with emphasis on those services which State Street is
well positioned to provide.
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 March 31, 1996,
the portfolio included $8.0 billion of interest-bearing deposits with banks,
$4.0 billion of securities purchased under resale agreements and securities
borrowed, and $.2 billion of Federal funds sold. Of the total $12.2 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 $6.2
billion available-for-sale-portfolio of investment 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 March 31, 1996, State Street's liquid assets were 78%
of total assets.
FOREIGN EXCHANGE AND DERIVATIVE FINANCIAL INSTRUMENTS
State Street uses foreign exchange and other financial derivative instruments to
support customers' needs, conduct trading activities, and manage interest rate
and currency risks. 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.
As a 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. State Street's positions are
based on market expectations and customers' needs. As of March 31, 1996, the
notional amount of these instruments was approximately $69.8 billion of which
$67 billion was foreign exchange forward, swap and spot contracts.
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 that
are used as part of the asset-and liability-management process are subjected to
the same credit and interest-rate risk processes for 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.
RECENT ANNOUNCEMENTS
Acquisitions and alliances made in the first quarter establish a framework for
future growth. Wellspring Resources, a joint venture with Watson Wyatt
Worldwide, will leverage State Street's capabilities in investment management
and trust services with Watson Wyatt Worldwide's expertise in benefits design,
compliance and consulting. The new joint venture will provide administration a
complete outsourcing solution for medical, dental, and other employee benefits.
State Street's business alliance with Global Financial Information Corp. (GFI)
will provide the stage for a range of product development, distribution and
market activities that will be jointly undertaken by the two companies over the
next five years. State Street brings expertise in trade execution and decision
support as well as its recognized post-trade capabilities. GFI's distribution
network provides access to approximately 18,000 terminals via their network
services and open architecture solutions. GFI subsidiaries include Market Vision
and Bridge Information Systems.
In April, State Street announced the filing of a shelf registration statement
which amended a previously filed shelf registration and provides for the
issuance of up to $500 million of debt securities (senior and subordinated)
and/or preferred stock.
STOCK REPURCHASE PROGRAM
During the quarter, the Corporation purchased 1.6 million shares of its stock.
At quarter end, a total of 2 million shares had been purchased under the current
3 million share purchase program.
OUTLOOK
1996 began with a strong quarter, in which revenue increased at a higher rate
than expenses. As 1996 progresses, management will maintain its focus on
improving operating leverage while continuing to invest for the future at a
steady pace. There are substantial opportunities for growth in State Street's
dynamic, growing markets.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Information concerning legal proceedings appears in Note H to the Consolidated
Financial Statements on Page 10 of this report, and such information is
incorporated herein by reference.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Registrant's annual meeting of stockholders was held on April 17, 1996. At the
Meeting the following nominees for Director were elected:
1. Election of Six Directors:
Number of Shares
----------------
For Withheld Authority
--- ------------------
Tenley E. Albright, M.D. 68,432,642 727,951
Marshall N. Carter 68,416,728 743,865
Nader F. Darehshori 68,431,956 728,638
Charles F. Kaye 68,350,219 810,374
John M. Kucharski 68,424,808 735,785
Bernard W. Reznicek 68,433,024 727,569
The following directors continue in office: I. MacAllister Booth, James I. Cash,
Jr., Truman S. Casner, Arthur L. Goldstein, David B. Perini, Dennis J. Picard,
Joseph A. Baute, Charles R. Lamantia, Alfred Poe, David A. Spina and Robert E.
Weissman.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a)Exhibit Index
Exhibit Number Page of this Report
- -------------- -------------------
11 Statement re computation of per share earnings 23
12 Ratio of Earnings to Fixed Charges 24
15 Letter re: unaudited interim financial information 25
27 Financial data schedule -
(b)Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of l934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STATE STREET BOSTON CORPORATION
Date: May 10, 1996 By: /s/ Ronald L. O'Kelley
---------------------------------------------
Ronald L. O'Kelley
Executive Vice President and Chief Financial Officer
Date: May 10, 1996 By: /s/ Rex S. Schuette
---------------------------------------------
Rex S. Schuette
Senior Vice President and Comptroller
<PAGE>
Exhibit 11
STATE STREET BOSTON CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(Dollars in thousands, Three Months Ended
except per share data) March 31,
---------------------------
1996 1995
---------- ----------
Primary
Average shares outstanding 81,641,835 82,499,807
Common stock equivalents 619,074 390,605
---------- ----------
Primary shares outstanding 82,260,909 82,890,412
========== ==========
Net income $ 69,750 $ 54,336
========== ==========
Earnings Per Share-primary $ .85 $ .66
========== ==========
Fully Diluted
Average shares outstanding 81,641,835 82,499,807
Common stock equivalents 696,879 406,731
Assumed conversion of 7 3/4%
convertible subordinated
debentures 557,391 581,391
---------- ----------
Fully diluted average
shares outstanding 82,896,105 83,487,929
========== ==========
Net income $ 69,750 $ 54,336
Elimination of interest on
7 3/4% convertible subordinated
debentures less related income tax
effect 36 37
---------- ----------
Fully diluted net income $ 69,786 $ 54,373
========== ==========
Earnings Per Share-fully diluted $ .84 $ .65
========== ==========
<PAGE>
EXHIBIT 12
STATE STREET BOSTON CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, -------------------------------------------------------
1996 1995 1994 1993 1992 1991
---------- ----------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
(A) Excluding interest on deposits:
Earnings:
Income before income taxes ........ $ 109,062 $ 370,242 $343,229 $292,523 $271,163 $241,167
Fixed charges ..................... 105,136 494,678 266,985 183,814 189,369 184,630
---------- ---------- -------- -------- -------- --------
Earnings as adjusted ........ $ 214,198 $ 864,920 $610,214 $476,337 $460,532 $425,797
========== ========== ======== ======== ======== ========
Income before income taxes:
Pretax income from continuing
operations as reported .......... $ 107,988 $ 366,490 $340,134 $291,091 $270,821 $241,130
Share of pretax income (loss)
of 50% owned subsidiaries not
included in above .............. 1,074 3,752 3,095 1,432 342 37
---------- ---------- -------- -------- -------- --------
Net income as adjusted ...... $ 109,062 $ 370,242 $343,229 $292,523 $271,163 $241,167
========== ========== ======== ======== ======== ========
Fixed charges:
Interest on other borrowings ...... $ 102,141 $ 482,613 $254,780 $170,176 $172,397 $167,714
Interest on long-term debt
including amortization of
debt issue costs ................ 2,117 8,525 8,625 10,022 13,324 13,238
Portion of rents representative of
the interest factor in long
term lease ...................... 878 3,540 3,580 3,616 3,648 3,678
---------- ---------- -------- -------- -------- --------
Fixed charges ............... $ 105,136 $ 494,678 $266,985 $183,814 $189,369 $184,630
========== ========== ======== ======== ======== ========
Ratio of earnings to fixed charges .. 2.04x 1.75x 2.29x 2.59x 2.43x 2.31x
(B) Including interest on deposits:
Adjusted earnings from (A) above .... $ 214,198 $ 864,920 $610,214 $476,337 $460,532 $425,797
Add interest on deposits ............ 110,571 416,047 280,687 213,890 263,927 306,642
---------- ---------- -------- -------- -------- --------
Earnings as adjusted $ 324,769 $1,280,967 $890,901 $690,227 $724,459 $732,439
========== ========== ======== ======== ======== ========
Fixed charges:
Fixed charges from (A) above ...... $ 105,136 $ 494,678 $266,985 $183,814 $189,369 $184,630
Interest on deposits .............. 110,571 416,047 280,687 213,890 263,927 306,642
---------- ---------- -------- -------- -------- --------
Adjusted fixed charges .............. $ 215,707 $ 910,725 $547,672 $397,704 $453,296 $491,272
========== ========== ======== ======== ======== ========
Adjusted earnings to adjusted
fixed charges ...................... 1.51x 1.41x 1.63x 1.74x 1.60x 1.49x
</TABLE>
<PAGE>
Exhibit 15
STATE STREET BOSTON CORPORATION
INDEPENDENT ACCOUNTANT'S ACKNOWLEDGMENT LETTER
The Stockholders and Board of Directors
State Street Boston Corporation
We are aware of the incorporation by reference in the Registration Statement
(Form S-8 Nos. 33-57359, 33-38672, 33-38671, 33-2882, 2-93157, 2-88641 and
2-68698) and the Post-Effective Amendment No. 2 to Registration Statement (Form
S-8 No. 2-68696) pertaining to various stock option and performance share plans,
and in the Registration Statement (Form S-3 Nos. 33-32143 and 33-49885)
pertaining to the registration of debt securities of State Street Boston
Corporation, of our report dated April 12, 1996 relating to the unaudited
consolidated interim financial statements of State Street Boston Corporation
which are included in its Form 10-Q for the quarter ended March 31, 1996.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a part
of the registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
ERNST & YOUNG LLP
Boston, Massachusetts
May 10, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-30-1996
<CASH> 1,523,903
<INT-BEARING-DEPOSITS> 8,041,697
<FED-FUNDS-SOLD> 4,181,285
<TRADING-ASSETS> 404,923
<INVESTMENTS-HELD-FOR-SALE> 6,166,148
<INVESTMENTS-CARRYING> 837,378
<INVESTMENTS-MARKET> 837,326
<LOANS> 4,204,237
<ALLOWANCE> 65,716
<TOTAL-ASSETS> 27,229,174
<DEPOSITS> 17,737,693
<SHORT-TERM> 6,340,697
<LIABILITIES-OTHER> 1,464,357
<LONG-TERM> 126,346
<COMMON> 82,694
0
0
<OTHER-SE> 1,477,387
<TOTAL-LIABILITIES-AND-EQUITY> 27,229,174
<INTEREST-LOAN> 65,089
<INTEREST-INVEST> 90,013
<INTEREST-OTHER> 190,916
<INTEREST-TOTAL> 346,018
<INTEREST-DEPOSIT> 110,571
<INTEREST-EXPENSE> 214,829
<INTEREST-INCOME-NET> 131,189
<LOAN-LOSSES> 2,000
<SECURITIES-GAINS> 692
<EXPENSE-OTHER> 327,868
<INCOME-PRETAX> 107,988
<INCOME-PRE-EXTRAORDINARY> 107,988
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,750
<EPS-PRIMARY> .85
<EPS-DILUTED> .84
<YIELD-ACTUAL> 5.67
<LOANS-NON> 14,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 63,491
<CHARGE-OFFS> 308
<RECOVERIES> 533
<ALLOWANCE-CLOSE> 65,716
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
