<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
[ ] 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)
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)
State Street Boston Corporation
(Former name)
-----------------
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, 1997 was 80,184,534.
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<PAGE>
STATE STREET CORPORATION
Table of Contents
Page
PART I. FINANCIAL INFORMATION --------
- ------------------------------
Item 1. Financial Statements
Consolidated Statement of Income ..................................... 1
Consolidated Statement of Condition .................................. 2
Consolidated State of Cash Flows ..................................... 3
Consolidated Statement of Changes in Stockholders' Equity ............ 4
Notes to Consolidated Financial Statements ........................... 5 - 10
Independent Accountants' Review Report ............................... 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................... 12 - 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ..................................... 19
Item 2. Changes in Securities ................................. 19
Item 3. Defaults Upon Senior Securities ....................... 19
Item 4. Submission of Matters to a Vote of Security Holders ... 19
Item 5. Other Information ..................................... 19
Item 6. Exhibits and Reports on Form 8-K ...................... 19
Signatures ........................................................... 20
Exhibits ............................................................. 21 - 24
<PAGE>
PART I. ITEM 1.
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME - STATE STREET CORPORATION (UNAUDITED)
- -------------------------------------------------------------------------------
(Dollars in millions, except per share data)
Three months ended March 31, 1997 1996
- -------------------------------------------------------------------------------
FEE REVENUE
Fiduciary compensation ................................... $ 286 $ 234
Foreign exchange trading ................................. 46 34
Servicing and processing ................................. 40 28
Other 2 11
------- --------
Total fee revenue .................................. 374 307
NET INTEREST REVENUE
Interest revenue ......................................... 398 346
Interest expense ......................................... 248 215
------- --------
Net interest revenue ............................... 150 131
Provision for loan losses ................................ 3 2
------- --------
Net interest revenue after provision for loan losses 147 129
------- --------
TOTAL REVENUE ...................................... 521 436
OPERATING EXPENSES
Salaries and employee benefits ........................... 219 181
Transaction processing services .......................... 44 37
Equipment ................................................ 38 32
Occupancy ................................................ 28 25
Other 62 53
------- --------
Total operating expenses ........................... 391 328
------- --------
Income before income taxes ......................... 130 108
Income taxes ............................................. 44 38
======= ========
NET INCOME ......................................... $ 86 $ 70
======= ========
EARNINGS PER SHARE
Primary ............................................ $ 1.06 $ .85
Fully diluted ...................................... $ 1.05 .84
AVERAGE SHARES OUTSTANDING (in thousands)
Primary ............................................ 81,555 82,261
Fully diluted ...................................... 82,104 82,896
CASH DIVIDENDS DECLARED PER SHARE ........................ $ .20 $ .18
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
PART I. ITEM 1.
FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED STATEMENT OF CONDITION - STATE STREET CORPORATION
- --------------------------------------------------------------------------------
(UNAUDITED)
MARCH 31, December 31,
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------------------
ASSETS
Cash and due from banks ....................... $ 1,712 $ 1,623
Interest-bearing deposits with banks .......... 8,198 7,565
Securities purchased under resale agreements
and securities borrowed ..................... 4,502 4,613
Federal funds sold ............................ 1,451 1,155
Trading account assets ........................ 144 255
Investment securities (principally available
for sale) ..................................... 10,236 9,387
Loans (less allowance of $70 and $73) ......... 4,771 4,640
Premises and equipment ........................ 466 468
Customers' acceptance liability ............... 46 35
Accrued income receivable ..................... 477 442
Other assets .................................. 1,628 1,341
-------- --------
TOTAL ASSETS ............................ $ 33,631 $ 31,524
======== ========
LIABILITIES
Deposits:
Noninterest-bearing ........................... $ 6,367 $ 6,395
Interest-bearing:
Domestic ................................... 1,951 2,071
Non-U.S .................................... 12,126 11,053
-------- --------
Total deposits .......................... 20,444 19,519
Securities sold under repurchase agreements ... 8,112 7,387
Federal funds purchased ....................... 96 117
Other short-term borrowings ................... 722 649
Notes payable ................................. 81 86
Acceptances outstanding ....................... 46 35
Accrued taxes and other expenses .............. 634 657
Other liabilities ............................. 983 823
Long-term debt ................................ 775 476
-------- --------
TOTAL LIABILITIES ....................... 31,893 29,749
STOCKHOLDERS' EQUITY
Preferred stock, no par: authorized 3,500,000;
issued none ................................ - -
Common stock, $1 par: authorized 112,000,000;
issued 83,614,000 and 83,615,000 ........ 84 84
Surplus ....................................... 103 105
Retained earnings ............................. 1,760 1,694
Net unrealized (loss) gain on
available-for-sale securities ............... (15) 12
Treasury stock, at cost (3,394,000 and
2,461,000 shares) ........................... (194) (120)
-------- --------
TOTAL STOCKHOLDERS' EQUITY .............. 1,738 1,775
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY ................................ $ 33,631 $ 31,524
======== ========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
PART I. ITEM 1.
FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS - STATE STREET CORPORATION (UNAUDITED)
- --------------------------------------------------------------------------------
(Dollars in millions) Three months ended March 31, 1997 1996
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income ......................................... $ 86 $ 70
Noncash charges for depreciation, amortization,
provision for loan losses and deferred income taxes 64 115
-------- --------
Net income adjusted for noncash charges ........ 150 185
Adjustments to reconcile to net cash provided by
operating activities:
Securities gains, net .......................... - (1)
Net change in:
Trading account assets ...................... 111 99
Other, net .................................. (208) 133
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES . 53 416
-------- --------
INVESTING ACTIVITIES
Payments for purchase of:
Available-for sale securities .................... (1,524) (1,728)
Held to-maturity securities ...................... (216) (284)
Lease financing assets ........................... (230) (137)
Premises and equipment ........................... (27) (17)
Proceeds from:
Maturities of available-for sale securities ...... 597 889
Maturities of held-to-maturity securities ........ 203 272
Sales of available-for-sale securities ........... 49 120
Principal collected from lease financing ......... 19 38
Net (payments for) proceeds from:
Interest-bearing deposits with banks ............. (633) (2,066)
Federal funds sold, resale agreements and
securities borrowed ............................ (185) 1,573
Loans ............................................ (86) (164)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES ..... (2,033) (1,504)
-------- --------
FINANCING ACTIVITIES
Proceeds from issuance of:
Long-term debt ................................... 300 -
Nonrecourse debt for lease financing ............. 193 85
Notes payable .................................... - 88
Treasury stock ................................... - 5
Payments for:
Maturity of notes payable ........................ - (137)
Nonrecourse debt for lease financing ............. (28) (39)
Long-term debt ................................... (1) -
Cash dividends ................................... (16) (15)
Purchase of common stock ......................... (81) (72)
Net proceeds from:
Deposits ......................................... 925 1,090
Short-term borrowings ............................ 777 185
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES . 2,069 1,190
-------- --------
NET INCREASE .............................. 89 102
Cash and due from banks at beginning of period ..... 1,623 1,422
======== ========
CASH AND DUE FROM BANKS AT END OF PERIOD .. $ 1,712 $ 1,524
======== ========
SUPPLEMENTAL DISCLOSURE
Interest paid .................................... $ 247 $ 204
Income taxes paid ................................ $ 20 $ 31
- --------------------------------------------------------------------------------
The accompanying notes are in integral part of these financial statements.
<PAGE>
PART I. ITEM 1.
FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY -
STATE STREET CORPORATION (UNAUDITED)
- --------------------------------------------------------------------------------
(Dollars in millions, except per share data)
Three months ended March 31, 1997 1996
- --------------------------------------------------------------------------------
COMMON STOCK
Balance at end of period (no change during period) .. $ 84 $ 83
------- -------
SURPLUS
Balance at beginning of period ...................... 105 40
Treasury stock issued ............................... (2) (3)
------- -------
Balance at end of period ...................... 103 37
------- -------
RETAINED EARNINGS
Balance at beginning of period ...................... 1,694 1,465
Net Income .......................................... 86 70
Cash dividends declared ($.20 and $.18 per share).... (16) (15)
Currency translation ................................ (4) (1)
------- -------
Balance at end of period ...................... 1,760 1,519
------- -------
NET UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE
SECURITIES
Balance at beginning of period ...................... 12 13
Changes in unrealized gain (loss) ................... (27) (17)
------- -------
Balance at end of period ...................... (15) (4)
------- -------
TREASURY STOCK, AT COST
Balance at beginning of period ...................... (120) (13)
Common stock acquired (1,079,600 and 1,583,800
shares) ........................................... (81) (72)
Treasury stock issued (145,876 and 243,831 shares) 7 10
------- -------
Balance at end of period....................... (194) (75)
------- -------
TOTAL STOCKHOLDERS' EQUITY..................... $ 1,738 $ 1,560
======= =======
- --------------------------------------------------------------------------------
The accompanying notes are in integral part of these financial statements.
<PAGE>
PART I. ITEM 1.
FINANCIAL STATEMENTS (CONTINUED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
STATE STREET CORPORATION (UNAUDITED)
Note A - Basis of Presentation
State Street Corporation ("State Street,"), formerly State Street Boston
Corporation, is a financial services corporation and provides banking, trust,
investment management, global custody, administration and securities processing
services to both U.S. and non-U.S. customers. State Street reports three lines
of business: Financial Asset Services, Investment Management, and Commercial
Lending. Financial Asset Services provides global custody, accounting,
administration, foreign exchange, treasury, cash management, transaction
settlement and clearing, securities lending, and other services for investors
with large pools of investment assets worldwide such as mutual funds and pension
plans; and corporate trusteeship. Investment Management is comprised of the
business components that manage financial assets worldwide, for both
institutional and individuals, and provides related participant recordkeeping
for defined contribution plans. Commercial Lending activities include loans and
other banking services for regional middle-market companies, for nationwide
companies in selected industries and for broker/dealers. Other credit services
include asset-based finance, leasing and international trade finance.
The consolidated financial statements include the accounts of State Street and
its subsidiary, State Street Bank and Trust Company ("State Street Bank," "the
Bank"). The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. All significant intercompany balances and transactions have been
eliminated upon consolidation. The results of operations of businesses purchased
are included from the date of acquisition. Investments in 50%-owned affiliates
are accounted for by the equity method. Certain previously reported amounts have
been reclassified to conform to the current method of presentation. For the
Consolidated Statement of Cash Flows, State Street has defined cash equivalents
as those amounts included in the Statement of Condition caption, "Cash and due
from banks." For the three months ended March 31, 1997 and 1996, long-term debt
converted into common stock was $20,000 and $10,000, respectively.
In June 1996, Statement of Financial Accounting Standard ("SFAS"), No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" was issued. This statement provides standards for transfers and
servicing of financial assets and extinguishing liabilities. Certain provisions
of this statement are effective for fiscal years beginning after December 31,
1996. State Street adopted the required provisions of this new statement in
1997, and the provisions did not have a material impact on the financial
statements.
In February, 1997, SFAS No. 128, "Earnings per Share" was issued and is required
to be adopted as of December 31, 1997. This statement requires a change in the
method currently used to compute earnings per share and requires a restatement
of all prior period earnings per share amounts. Under SFAS No. 128, primary
earnings per share is replaced by basic earnings per share. Basic earnings per
share excludes the dilutive effect of stock options from the calculation.
Computing earnings per share in accordance with the provisions of this statement
for the three months ended March 31, 1997 and 1996 would have resulted in basic
earnings per share of $1.07 and $.85, respectively, and diluted earnings per
share of $1.05 and $.84, respectively.
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, 1997 and December 31, 1996, and
its cash flows and consolidated results of its operations for the three months
ended March 31, 1997 and 1996, 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.
Note B - Investment Securities
Available-for-sale securities are recorded at fair value and held-to maturity
securities are recorded at amortized cost on the Consolidated Statement of
Condition. Investment securities consisted of the following as of the dates
indicated:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MARCH 31, 1997 December 31, 1996
AMORTIZED UNREALIZED FAIR Amortized Unrealized Fair
(Dollars in millions) COST GAINS LOSSES VALUE Cost Gains Losses Value
- -------------------------------------------------------------------------------------------- ------------------------------------
Available for sale (at fair value):
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and Federal agencies............... $ 5,172 $ 7 $ 23 $ 5,156 $ 4,630 $ 18 $ 5 $ 4,643
State and political subdivisions................. 1,636 4 10 1,630 1,557 10 8 1,559
Asset-backed securities.......................... 1,344 1 3 1,342 1,198 3 1 1,200
Collateralized mortgage obligations.............. 627 1 10 618 638 1 8 631
Other investments................................ 611 8 1 618 485 12 2 495
------- ---- ---- ------- ------- ---- ---- -------
Total................................................ $ 9,390 $ 21 $ 47 $ 9,364 $ 8,508 $ 44 $ 24 $ 8,528
========= ==== ===== ======= ======= ==== ==== =======
Held to maturity (at amortized cost):
U.S. Treasury and Federal agencies............... $ 872 - $ 4 $ 868 $ 859 $ 2 $ 2 $ 859
======= ==== ===== ======== ======= ==== ==== =======
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the three months ended March 31, 1997, there were less than one million
of gains and losses realized on sales of available-for-sale securities of $49
million. During the three months ended March 31, 1996, gains of $3 million and
losses of $3 million were realized on sales of available-for-sale securities of
$120 million.
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 for the three months
ended March 31:
- -------------------------------------------------------------------------------
(Dollars in millions) 1997 1996
- -------------------------------------------------------------------------------
Balance at beginning of year.................. $ 73 $ 63
Provision for loan losses..................... 3 2
Loan charge-offs.............................. (6) -
Recoveries.................................... - 1
---- ----
Balance at end of period............................ $ 70 $ 66
==== ====
- --------------------------------------------------------------------------------
Note D - Long-Term Debt
On March 11, 1997, State Street completed the sale of $300 million of 8.035%
Capital Securities, Series A (the "Capital Securities"), due 2027, issued by
State Street Institutional Capital B (the "Trust"), a newly created subsidiary
business trust of State Street. The Capital Securities are fully guaranteed by
State Street. In connection with the sale of the Capital Securities, State
Street issued and sold to the Trust $309 million of its 8.035% Junior
Subordinated Deferrable Interest Debentures, Series B. At March 31, 1997, a
total of $500 million of capital securities is included in long-term debt.
Note E - Income Taxes
The provision for income taxes included in the Consolidated Statement of Income
is comprised of the following for the three months ended March 31:
- -------------------------------------------------------------------------------
(Dollars in millions) 1997 1996
- -------------------------------------------------------------------------------
Current............................................... $ 12 $ 11
Deferred.............................................. 32 27
---- ----
Total provision................................. $ 44 $ 38
==== ====
- -------------------------------------------------------------------------------
Taxes were $44 million, up from $38 million a year ago. The effective tax rate
was 33.6%, down from 35.4% in the first quarter of 1996.
Note F - Regulatory Matters:
The regulatory capital amounts and ratios were the following at March 31, 1997
and December 31, 1996:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Regulatory Guidelines (1)
------------------------- State Street State Street Bank
Well -------------------- -------------------------
(Dollars in millions) Minimum Capitalized 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Risk-based ratios:
<S> <C> <C> <C> <C> <C> <C> <C>
Tier 1 capital................... 4% 6% 14.9% 13.4% 12.1% 13.1%
Total capital.................... 8 10 15.0 13.6 11.8 13.4
Leverage ratio....................... 3 4 6.4 5.9 5.2 5.2
Tier 1 capital....................... $ 2,110 $ 1,818 $ 1,696 $ 1,391
Total capital........................ 2,130 1,847 1,666 1,422
Risk-based assets:
On-balance sheet................. $ 10,867 $ 10,311 $ 10,772 $ 8,296
Off-balance sheet................ 3,300 3,249 3,300 2,339
-------- -------- -------- --------
Total risk-based assets...... $ 14,167 $ 13,560 $ 14,072 $ 10,635
======== ========== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The regulatory framework for prompt corrective action is not applicable to
bank holding companies (State Street).
Note G - Net Interest Revenue
Net interest revenue consisted of the following for the three months ended
March 31:
- -------------------------------------------------------------------------------
(Dollars in millions) 1997 1996
- -------------------------------------------------------------------------------
INTEREST REVENUE
Deposits with banks................................ $ 90 $ 88
Investment securities:
U.S Treasury and Federal agencies.............. 85 48
State and political subdivisions (exempt
from Federal tax)............................. 18 14
Other investments............................... 36 28
Loans ............................................. 76 65
Securities purchased under resale agreements,
securities borrowed and Federal funds sold....... 90 100
Trading account assets............................. 3 3
----- -----
Total interest revenue....................... 398 346
----- -----
INTEREST EXPENSE
Deposits........................................... 109 111
Other borrowings................................... 129 102
Long-term debt..................................... 10 2
----- -----
Total interest expense....................... 248 215
----- -----
Net interest revenue......................... $ 150 $ 131
===== =====
- -------------------------------------------------------------------------------
Note H - Operating Expenses - Other
The other category of operating expenses consisted of the following for the
three months ended March 31:
- -------------------------------------------------------------------------------
(Dollars in millions) 1997 1996
- -------------------------------------------------------------------------------
Professional services.............................. $ 16 $ 13
Advertising and sales promotion.................... 11 9
Postage, forms and supplies........................ 7 7
Telecommunications................................. 6 6
Other 22 18
---- ----
Total operating expenses - other............. $ 62 $ 53
==== ====
- -------------------------------------------------------------------------------
Note I - Commitments and Contingent Liabilities
State Street provides banking, trust, investment management, global custody,
accounting, administration and securities processing services to both domestic
and global customers. Assets under custody and assets under management, held or
managed by State Street in a fiduciary or custodial capacity, are not included
in the Consolidated Statement of Condition because such items are not assets of
State Street. Management conducts regular reviews of its responsibilities of
these services and considers the results in preparing its financial statements.
In the opinion of management, there are no contingent liabilities at March 31,
1997 that would have a material adverse effect on State Street's financial
position or results of operations.
State Street is subject to pending and threatened legal actions that arise in
the normal course of business. In the opinion of management, after discussion
with counsel, these can be successfully defended or resolved without a material
adverse effect on State Street's financial position or results of operations.
Note J - Off-Balance Sheet Financial Instruments, Including Derivatives
State Street uses various off-balance sheet financial instruments, including
derivatives, to satisfy the financing and risk management needs of customers, to
manage interest rate and currency risk and to conduct trading activities. In
general terms, derivative instruments are contracts or agreements whose value
can be derived from interest rates, currency exchange rates and/or other
financial indices. Derivative instruments include forwards, futures, swaps,
options and other instruments with similar characteristics. The use of 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) 1997 1996
- -------------------------------------------------------------------------------
Trading:
Interest rate contracts:
Swap agreements......................... $ 933 $ 880
Options and caps purchased.............. 50 25
Options and caps written................ 139 116
Futures - short position................ 1,620 1,252
Options on futures purchased............ 520 430
Options on futures written.............. 540 28
Foreign exchange contracts:
Forward, swap and spot.................. 79,667 62,109
Options purchased....................... 66 206
Options written......................... 60 60
Options on futures purchased............ 567 330
Balance Sheet Management :
Interest rate contracts:
Swap agreements.................... 307 296
Options and caps purchased......... 50 50
Foreign exchange contracts:
Forward, swap and spot............. - 65
- -------------------------------------------------------------------------------
The following table represents the fair value of financial instruments held or
issued for trading purposes as of:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
MARCH 31, 1997 December 31, 1996
----------------------- -------------------------
AVERAGE Average
FAIR FAIR Fair Fair
(Dollars in millions) VALUE VALUE Value Value
- -----------------------------------------------------------------------------------------------------
Foreign exchange contracts:
<S> <C> <C> <C> <C>
Contracts in a receivable position..... $ 813 $ 1,097 $ 620 $ 615
Contracts in a payable position........ 806 1,164 634 617
Other financial instrument contracts:
Contracts in a receivable position..... 6 8 6 6
Contracts in a payable position........ 3 6 4 4
- -----------------------------------------------------------------------------------------------------
</TABLE>
The preceding 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 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 as of:
- -------------------------------------------------------------------------------
MARCH 31, December 31,
(Dollars in millions) 1997 1996
- -------------------------------------------------------------------------------
Indemnified securities on loan................ $ 50,247 $ 41,518
Loan commitments.............................. 5,128 4,974
Standby letters of credit..................... 1,720 1,777
Letters of credit............................. 179 160
- -------------------------------------------------------------------------------
On behalf of its customers, State Street lends their securities to creditworthy
brokers and other institutions. In certain circumstances, State Street may
indemnify its customers for the fair market value of those securities against a
failure of the borrower to return such securities. State Street requires the
borrowers to provide collateral in an amount equal to or in excess of 102% of
the fair market value of the securities borrowed. The borrowed securities are
revalued daily to determine if the additional collateral is necessary. State
Street held as collateral, cash and U.S. Government securities totaling $52.4
billion and $42.8 billion for indemnified securities on loan at March 31, 1997
and December 31, 1996, respectively.
Loan and letter-of-credit commitments are subject to the same credit policies
and reviews as loans on the balance sheet. Collateral, both the amount and
nature, is obtained based upon management's assessment of the credit risk.
Approximately 70% of the loan commitments expire in one year or less from the
date of issue. Since many of the extensions of credit are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
<PAGE>
Independent Accountants' Review Report
The Stockholders and Board of Directors
State Street Corporation
We have reviewed the accompanying consolidated statement of condition of State
Street Corporation as of March 31, 1997, and the related consolidated statements
of income, cash flows and changes in stockholders' equity for the three-month
periods ended March 31, 1997 and 1996. These financial statements are the
responsibility of State Street'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, 1996 (presented herein), 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 14, 1997, we expressed an unqualified opinion on those consolidated
financial statements.
ERNST & YOUNG LLP
Boston, Massachusetts
April 14, 1997
<PAGE>
PART I. ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Summary
Earnings per share were $1.05 on a fully diluted basis, an increase of 25% from
$.84 in the first quarter of 1996. Revenue grew 20%, from $444 million to $531
million. Net income was $86 million, up from $70 million a year ago. Return on
stockholders' equity was 19.9%.
<TABLE>
<CAPTION>
Condensed Income Statement - Taxable Equivalent Basis
- -------------------------------------------------------------------------------------------
Three months ended
March 31,
(Dollars in millions, except per share data) 1997 1996 Change %
- -------------------------------------------------------------------------------------------
Fee revenue:
<S> <C> <C> <C> <C>
Fiduciary compensation..................... $ 286 $ 234 $ 52 22
Foreign exchange trading................... 46 34 12 37
Servicing and processing................... 40 28 12 40
Other...................................... 2 11 (9) -
------ ----- ----- --
Total fee revenue....................... 374 307 67 22
Net interest revenue.......................... 160 139 21 15
Provision for loan losses..................... 3 2 1 50
------- ----- ----- --
Total revenue........................... 531 444 87 20
Operating expenses............................ 391 328 63 19
------- ----- ----- --
Income before taxes..................... 140 116 24 21
Income taxes.................................. 44 38 6 14
Taxable equivalent adjustment................. 10 8 2 24
------ ----- ----- --
Net income.............................. $ 86 $ 70 $ 16 24
====== ===== ===== ==
Earnings Per Share
Primary................................. $ 1.06 $ .85 $ .21 25
Fully diluted........................... 1.05 .84 .21 25
- -------------------------------------------------------------------------------------------
</TABLE>
(Percentage change based on dollars in thousands, except per share data)
Total Revenue
Total revenue for the quarter was $531 million, up $87 million, or 20%, from a
year ago, reflecting strong growth in all lines of business. Revenue benefited
particularly from cross-border investment activity, evidenced by increased
levels of foreign exchange trading volume, non-U.S. investments by U.S.
customers, non-U.S. equity securities on loan, and non-U.S. deposits. State
Street continued to benefit from expanding relationships with its customers, who
are growing and using more services and a substantial amount of the new business
won was installed.
Fee Revenue
Fee revenue, which comprised 70% of total revenue, was $374 million, up 22% from
a year ago.
The largest component of fee revenue is fiduciary compensation, which is derived
from accounting, custody, recordkeeping, information, investment management and
trustee services. Fiduciary compensation was $286 million, up $52 million, or
22%, from a year ago due to new business and customers' growth.
Fiduciary compensation grew strongly in all financial asset services businesses.
Revenue from mutual funds reflected growth in accounting, custody and pricing
services, particularly for non-U.S. assets. In addition to increased revenue
from its traditional core products, State Street is seeing more rapid
year-over-year growth in revenue from additional services it provides, notably
services for offshore funds, securities lending and fund administration. The
number of offshore funds serviced is up 31% from a year ago and offshore-fund
assets under custody have more than doubled. Additional mutual funds are looking
to securities lending to enhance their returns. State Street is providing fund
administration for 14% more funds than a year ago, and for more than twice the
asset volume.
Revenue from servicing U.S. pension plans increased from a large amount of new
business and from an increase in the volume of customers' securities on loan.
Outside the United States, new customers and additional business from existing
customers drove revenue growth. Assets under custody for non-U.S. customers
increased 36% from a year ago.
Revenue from investment management services, delivered through State Street
Global Advisors, was up substantially. Revenue growth occurred across the
product line-U.S. and international equities, fixed income and asset allocation
strategies for institutional investors; recordkeeping for defined contribution
plans; and services for high net worth individuals. Revenue from participant
recordkeeping and investment management for defined contribution plans was
particularly strong. This reflected growth of the current business, new business
installed and an acquisition. Total assets under management were $321 billion,
up 27% from a year ago. Three quarters of this growth came from additional
contributions from customers and new customers, with one quarter from increased
market values.
Foreign exchange trading revenue was $46 million, up $12 million, or 37%, from a
year ago due to additional volume, active markets and new customers looking to
State Street to support their global investment strategies. Servicing and
processing fee revenue was $40 million, up $12 million, or 40%, from a year ago.
This reflected the acquisition of Princeton Financial Systems, Inc. in the
fourth quarter of 1996, strong growth in fees from brokerage services, and
increased fee revenue from currency hedging programs for customers.
As is typical, other fee revenue includes a number of timing items. This
quarter, the timing items netted to $2 million, a relatively low number, as
compared with $11 million, a relatively high number a year ago which benefited
from the sale of the unit trust business. This year, currency translation gains
on foreign notes payable and gains on leasing residuals were partially offset by
a write down in the value of property that is no longer intended to be used for
bank premises.
Net Interest Revenue
Taxable equivalent net interest revenue for the first quarter was $160 million,
up $21 million, or 15%, from a year ago due to a $4 billion, or 16%, increase in
interest-earning assets. The primary source of growth in interest-earning assets
was additional funding from securities sold under repurchase agreements and
deposits from customers in conjunction with their worldwide investment
activities.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
1997 1996
--------------------------- ---------------------------
AVERAGE Average
(Dollars in millions) BALANCE RATE Balance Rate
- ------------------------------------------------------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
Interest-earning assets................................ $ 29,164 5.67% $ 25,094 5.67%
Interest-bearing liabilities........................... 23,932 4.20 20,467 4.22
------- -------
Excess of rates earned over rates paid................. 1.47% 1.45%
======= =======
Net Interest Margin.................................... 2.22% 2.23%
======= ======
</TABLE>
<PAGE>
Operating Expenses
Operating expenses for the first quarter of $391 million were up $63 million, or
19%, from the first quarter of 1996 supporting business growth and investments
for future growth, and reflecting acquisitions. Salaries and employee benefits
were $219 million, up $38 million, or 21%. Staff levels increased 13% and
incentive compensation was higher reflecting strong growth in earnings.
Credit Quality
At March 31, 1997, total loans were $5 billion, 14% of the balance sheet. In the
first quarter, the provision for loan losses was $3 million, up from $2 million
a year ago and charge-offs were $6 million, due principally to one trade finance
loan, versus less than a million for the first quarter of 1996. During the
quarter, the allowance for loan losses decreased from $73 million to $70
million. Non-performing loans declined from $12 million to $6 million.
Taxes
Taxes were $44 million, up from $38 million a year ago. The effective tax rate
was 33.6%, down from 35.4% in the first quarter of 1996. The improvement in the
effective tax rate reflected a higher level of tax credits and the
implementation of initiatives to maximize tax resources worldwide.
Lines of Business
Following is a summary of line of business operating results for the three
months ended March 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Financial Investment Commercial
Taxable equivalent basis Asset Services Management Lending
(Dollars in millions) 1997 1996 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fee revenue................................ $ 268 $ 228 $ 92 $ 67 $ 14 $ 12
Net interest revenue....................... 113 95 6 8 38 34
----- ----- ---- ---- ---- ----
Total revenue........................ 381 323 98 75 52 46
Operating expenses......................... 289 248 79 59 23 21
===== ===== ==== ==== ==== ====
Operating profit..................... $ 92 $ 75 $ 19 $ 16 $ 29 $ 25
===== ===== ==== ==== ==== ====
Pretax margin.............................. 24% 23% 19% 21% 56% 55%
Percentage contribution.................... 66% 64% 13% 14% 21% 22%
Average assets (billions).................. $28.7 $24.8 $ .6 $ .5 $3.6 $3.0
</TABLE>
Financial Asset Services
Financial Asset Services provides accounting, custody, daily pricing,
information, foreign exchange, cash management, securities lending and other
services for investors with large pools of investment assets worldwide; and
corporate trusteeship. Revenue from this line of business comprised 72% of State
Street's total revenue for the first quarter.
Revenue increased to $381 million, up 18% from $323 million in 1996. The $58
million increase in revenue resulted from increased cross-border investment
activity, the installation of a substantial amount of new business and expanding
relationships with customers, who are growing and using more services. Fee
revenue was up 18%. This reflected strong growth in revenue from accounting,
custody and other services for mutual funds, U.S. pension plans, and customers
outside the U.S. Foreign exchange trading revenue was up substantially. Net
interest revenue, also up 18%, reflected an increase in interest-earning assets.
The primary source of growth in interest earning assets was additional funding
from customers in conjunction with their worldwide investment activities.
Operating expenses were $289 million, 17% higher than a year ago, due to
business growth and investments for future growth, and reflecting acquisitions.
Operating profit was $92 million, an increase of $17 million, or 24%, from a
year ago and reflected strong revenue growth as well as an improvement in the
pre-tax margin.
Investment Management
State Street manages financial assets worldwide for both institutions and
individuals and provides related services, particularly participant
recordkeeping for defined contribution plans. State Street's investment
management services feature a broad array of products, including quantitative
equity management, both passive and active, money market funds, and fixed income
strategies. Revenue from this line of business comprised 18% of State Street's
total revenue for the first quarter.
Revenue grew 30% to $98 million, due to revenue growth across the product line.
Operating expenses increased 34% reflecting additional staff to support business
growth and acquisitions. Operating profit was $19 million, an increase of $3
million, or 16%, from $16 million in 1996. The pretax profit margin declined
from 14% in 1995 to 13% in 1996.
Commercial Lending
Reported in this line of business are loans and other banking services for
regional middle-market companies, for companies in selected industries
nationwide, and for broker/dealers. Other credit services include asset-based
finance, leasing and international trade finance. Revenue from this line of
business comprised 10% of State Street's total revenue for the first quarter.
Revenue grew to $52 million, up 13% from $46 million in the first quarter a year
ago, due primarily to a 21% increase in loans. Loans to New England businesses
and specialty industries nationwide, leveraged leases, and international trade
finance all grew.
Operating expenses increased 11%, supporting business growth. Operating profit
was $29 million, an increase of $4 million, or 10% from 1996, due to revenue
growth and an improvement in the pre-tax margin.
Accounting Changes
In June 1996, SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" was issued. This statement provides
standards for transfers and servicing of financial assets and extinguishing
liabilities. Certain provisions of this statement are effective for fiscal years
beginning after December 31, 1996. State Street adopted the required provisions
of this new statement in 1997, and the provisions did not have a material impact
on the financial statements.
In February, 1997, SFAS No. 128, "Earnings per Share" was issued and is required
to be adopted as of December 31, 1997. This statement requires a change in the
method currently used to compute earnings per share and requires a restatement
of all prior period earnings per share amounts. Under SFAS No. 128, primary
earnings per share is replaced by basic earnings per share. Basic earnings per
share excludes the dilutive effect of stock options from the calculation.
Computing earnings per share in accordance with the provisions of this statement
for the three months ended March 31, 1997 and 1996 would have resulted in basic
earnings per share of $1.07 and $.85, respectively, and diluted earnings per
share of $1.05 and $.84, respectively.
Capital and Liquidity
State Street maintains a strong capital base to support its customers. Strong
capital levels provide financial flexibility as well, which facilitates funding
corporate growth and other business needs.
As a state chartered bank and member of the Federal Reserve System, State Street
Bank and Trust Company, State Street's principal subsidiary, is regulated by the
Federal Reserve Board which has established guidelines for minimum capital
ratios. State Street has developed internal capital-adequacy policies to ensure
that the Bank meets or exceeds the level required for the "well capitalized"
category, the highest of the Federal Reserve Board's five capital categories.
State Street's capital management emphasizes risk exposure rather than simple
asset levels; at 12.1%, the Bank's Tier 1 risk-based capital ratio significantly
exceeds the regulatory minimum of 4% and is among the highest for U.S. banks.
State Street's total risk-based ratio of 15.0% is likewise among the highest for
U.S. bank holding companies.
The primary objective of State Street's liquidity management is to ensure that
it has sufficient funds to conduct its activities, including accommodating the
transaction and cash management requirements of its customers, meeting loan
commitments and replacing maturing liabilities. Liquidity is provided by State
Street's access to global debt markets, its ability to gather additional
deposits from its customers, maturing short-term assets, the sale of securities
and payments of loans. Customer deposits and other funds provide a
multi-currency, geographically-diverse source of funding.
State Street maintains a large portfolio of liquid assets. When liquidity is
measured by the ratio of liquid assets to total assets, State Street ranks among
the highest of U.S. banking companies. At March 31, 1997, State Street's liquid
assets were 78% of total assets.
Foreign Exchange And Derivative Financial Instruments
State Street used foreign exchange and a variety of financial derivative
instruments to support customers' needs, conduct trading activities, and manage
interest rate and currency risk. These activities are designed to create trading
revenue or hedge net interest revenue. In addition, State Street provides
services related to derivative instruments in its role as both a manager and
servicer of financial assets.
State Street's customers use derivatives to manage the financial risks
associated with their investment goals and business activities. With the growth
of cross-border investing, customers have an increasing need for foreign
exchange forward contracts to convert currency for international investment and
to manage the currency risk in an international investment portfolio. As an
active participant in the foreign exchange markets, State Street provides
foreign exchange contracts and over-the-counter options in support of these
customer needs.
As part of its trading activities, State Street assumes market positions in both
the foreign exchange and interest rate markets using financial derivatives
including forward foreign exchange contracts, foreign exchange and interest rate
options, and interest rate swaps.
As of March 31, 1997, the notional amount of these instruments was $84.2
billion, of which $80.4 billion was foreign exchange forward contracts. Long and
short foreign exchange forward positions are closely matched to minimize
currency and interest rate risk. In order to estimate changes in the value of
the outstanding contracts, all forward foreign exchange contracts are valued
daily at current market rates.
State Street uses various derivatives to minimize the interest rate and foreign
exchange risks associated with its global business activities. As of March 31,
1997, the notional amount of these derivatives was $357 million.
Trading activities involving both foreign exchange and interest rate derivatives
are managed using earnings-at-risk measures and trading limits as established by
risk management policies. Interest rate and foreign exchange derivatives used as
part of the asset and liability management process undergo the same credit and
interest rate risk analyses as on-balance sheet financial instruments.
Stock Purchase Program
State Street purchased 1,080,000 shares of its stock during the first quarter of
1997 at an average price of $75 per share. This brings the total shares
purchased to 4.2 million of the 6 million shares currently authorized by the
Board of Directors.
Financial Goals and Factors Which May Affect Them
State Street's primary financial goal is sustainable real growth in earnings per
share. There are two supporting goals, one for total revenue and one for return
on common stockholder's equity ("ROE"). The revenue goal is 12.5% real, or
inflation adjusted, growth in revenue per year for the decade of the 1990s.
Decade-to-date, this has translated into a nominal growth goal of 15.2%
compounded per year. The ROE goal is to achieve 18%.
State Street considers these to be financial goals, not projections or
forward-looking statements. However, if these goals are perceived to be
forward-looking statements, they, as with any other statement that may be
considered forward looking, should be considered in conjunction with the factors
listed below, which could cause actual results to differ materially.
The following issues and factors, among others, should be considered in
evaluating the outlook for State Street's goals and forward-looking statements:
o Cross-border investing. Cross-border investing by customers worldwide
benefits revenue. Future revenue may increase or decrease depending upon the
extent of cross-border investments made by customers or future customers.
o Savings rate of individuals. State Street benefits from the savings of
individuals which are invested in mutual funds or defined contribution plans.
Changes in savings rates or styles may lead to increased or decreased revenue.
o Value of worldwide financial markets. As worldwide financial markets increase
or decrease in value, State Street's opportunities to invest and service
financial assets may change. Since a portion of State Street's fees are based
on the value of assets under custody and management, fluctuations in worldwide
securities market valuations will affect revenue.
o Dynamics of markets served. Changes in the markets served can affect revenue,
including the growth rate of U.S. mutual funds, the pace of debt issuance,
outsourcing decisions, and mergers, acquisitions and consolidations among
customers and competitors.
o Interest rates. Market interest rate levels, the direction of interest rate
changes, and the shape of the yield curve affect both net interest revenue and
fiduciary compensation from securities lending. All else being equal, State
Street benefits from higher rather than lower interest rates because it has a
larger amount of interest-earning assets than interest-bearing liabilities.
However, if all other variables remained constant, in the short-term, rising
rates would lead to lower net interest revenue; falling interest rates would
lead to net interest revenue which is higher than it would otherwise have
been.
o Pace of pension reform. State Street expects to benefit from worldwide
pension reform that creates additional pools of assets that use custody and
related services of investment management services. The pace of pension reform
will affect the pace of revenue growth.
o Pricing/competition. Future prices State Street is able to obtain for its
products may increase or decrease from current levels depending upon demand
for its products and its competitors' activities. State Street, or its
competitors, could introduce new products into the marketplace.
o Pace of new business. The pace at which existing and new customers use
additional services will affect future revenue.
o Business mix. Changes in business mix, including the mix of U.S. and non-U.S.
business, will affect earnings growth rates.
o Rate of technological change. Technological change creates opportunities for
product differentiation and reduced costs as well as the possibility of
increased expenses.
Based on its evaluation of these factors, management is currently optimistic
about State Street's long-term prospects.
Conclusion
The first quarter of 1997 was another excellent, record-breaking quarter. The
strong momentum developed in 1996 was evident not only in the first quarter's
financial results, but also in State Street's successful sales efforts. In the
quarter, the market confirmed that State Street is on the right track, as both
existing and new customers awarded State Street with a record amount of new
business. Continued new business success helps extend State Street's momentum
through the years ahead.
Very strong financial performance in the first quarter continued the substantial
earnings and sales momentum achieved in 1996. These achievements-outstanding
financial performance and continued effective marketing of a wide array of
products-resulted from the successful execution of State Street's strategic
plan, which focuses on serving institutional investors worldwide.
While management is optimistic about 1997, the 25% earnings per share growth
rate in the first quarter is substantially above State Street's average of 15%
per year for the last 10 years. State Street's primary objective continues to be
long-term earnings per share growth for stockholders.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information concerning legal proceedings appears in Note I to the Consolidated
Financial Statements on Pages 8 and 9 of this report, and such information is
incorporated herein by reference.
ITEM 2. CHANGES IN SECURITIES
On February 20, 1997, the Board of Directors of State Street voted a two-for-one
stock split in the form of a 100 percent stock dividend to stockholders of
record on April 30, 1997 distributable on May 28, 1997. This stock dividend and
an increase in the authorized shares to 250 million was approved by the
stockholders at the annual meeting on April 16, 1997.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
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 21
12 Ratio of Earnings to Fixed Charges 22
15 Letter re: unaudited interim financial information 23
27 Financial data schedule 24
(b) Reports on Form 8-K
A current report on Form 8-K dated February 27, 1997 was filed by the Registrant
with the Securities and Exchange Commission which reported that on December 20,
1996, the Registrant completed the sale of $200 million of 7.94% Capital
Securities, Series A (the "Capital Securities") issued by State Street
Institutional Capital A (the "Trust"), a newly created subsidiary business trust
of the Registrant. The Capital Securities are fully guaranteed by the
Registrant. In connection with the sale of the Capital Securities, the
Registrant issued and sold to the Trust $206 million of its 7.94% Junior
Subordinated Deferrable Interest Debentures, Series A (the "Debentures").
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STATE STREET CORPORATION
Date: May 12, 1997 By: /s/ RONALD L. O'KELLEY
----------------------------------------------------
Ronald L. O'Kelley
Executive Vice President and Chief Financial Officer
Date: May 12, 1997 By: /s/ REX S. SCHUETTE
----------------------------------------------------
Rex S. Schuette
Senior Vice President and Comptroller
<PAGE>
EXHIBIT 11
STATE STREET CORPORATION
COMPUTATION OF EARNINGS PER SHARE
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
(Dollars in millions, except per share data;
shares in thousands) 1997 1996
- --------------------------------------------------------------------------------
PRIMARY
Average shares outstanding................. 80,668 81,642
Common stock equivalents................... 887 619
--------- ---------
Primary shares outstanding................. 81,855 82,261
========= =========
Net Income....................................... $ 86 $ 70
========= =========
Earnings per share - primary..................... $ 1.06 $ .85
========= =========
FULLY DILUTED
Average shares outstanding................. 80,668 81,642
Common stock equivalents................... 887 697
Assumed conversion of 7 3/4%...............
convertible subordinated debentures... 549 557
--------- ---------
Fully diluted average shares outstanding... 82,104 82,896
========= =========
Net income....................................... $ 86 $ 70
========= =========
Earnings per share - fully diluted............... $ 1.05 $ .84
========= =========
<PAGE>
EXHIBIT 12
STATE STREET CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Three Months
Ended
March 31, Year Ended December 31,
------------------------------------------------------
(Dollars in millions) 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(A) Excluding interest on deposits:
Earnings:
Income before income taxes .................... $ 132 $ 453 $ 370 $ 343 $ 292 $ 271
Fixed charges ................................. 142 477 495 267 184 190
----- -------- -------- ----- ----- -----
Earnings as adjusted ..................... $ 274 $ 930 $ 865 $ 610 $ 476 $ 461
===== ======== ======== ===== ===== =====
Income before income taxes
Pretax income from continuing
operations as reported ...................... $ 130 $ 447 $ 366 $ 340 $ 291 $ 271
Share of pretax income (loss) of 50%
owned subsidiaries not included
in above .................................... 2 6 4 3 1 -
----- -------- -------- ----- ----- -----
Net income as adjusted ................... $ 132 $ 453 $ 370 $ 343 $ 292 $ 271
===== ======== ======== ===== ===== =====
Fixed charges:
Interest on other borrowings .................. $ 129 $ 452 $ 482 $ 254 $ 170 $ 173
Interest on long-term debt including
amortization of debt issue costs ............ 10 15 9 9 10 13
Portion of rents representative of the
interest factor in long term lease .......... 3 10 4 4 4 4
----- -------- -------- ----- ----- -----
Fixed charges ................................. $ 142 $ 477 $ 495 $ 267 $ 184 $ 190
===== ======== ======== ===== ===== =====
Ratio of earnings to fixed charges .................. 1.93x 1.95x 1.75x 2.29x 2.59x 2.43x
(B) Including interest on deposits:
Adjusted earnings from (A) above .............. $ 274 $ 930 865 $ 610 $ 476 $ 461
Add interest on deposits ...................... 109 425 416 281 214 263
----- -------- -------- ----- ----- -----
Earnings as adjusted ..................... $ 383 $ 1,355 $ 1,281 $ 891 $ 690 $ 724
===== ======== ======== ===== ===== =====
Fixed charges:
Fixed charges from (A) above .................. $ 142 $ 477 495 $ 267 $ 184 $ 190
Interest on deposits .......................... 109 425 416 281 214 263
----- -------- -------- ----- ----- -----
Adjusted fixed charges ................... $ 251 $ 902 $ 911 $ 548 $ 398 $ 453
===== ======== ======== ===== ===== =====
Adjusted earnings to adjusted fixed charges ......... 1.53x 1.50x 1.41x 1.63x 1.74x 1.60x
</TABLE>
<PAGE>
EXHIBIT 15
STATE STREET CORPORATION
INDEPENDENT ACCOUNTANT'S ACKNOWLEDGMENT LETTER
The Stockholders' and Board of Directors
State Street Corporation
We are aware of the incorporation of reference in Registration Statements (Forms
S-8 Nos. 333-16979, 33-57359, 33-38672, 33-38671, 33-2882, 2-93157, 2-88641 and
2-68698) and in Post-Effective Amendment No. 2 to Registration Statement (Form
S-8 No. 2-68696) pertaining to various stock option and performance share plans,
in Registration Statements (Form S-3 Nos. 333-2143, 33-49885) pertaining to the
registration of debt securities and preferred stock of State Street Corporation
and in Registration Statement (Form S-3 No. 333-16897) pertaining to the
registration of Common Stock of State Street Boston Corporation, of our report
dated April 14, 1997 relating to the unaudited consolidated interim financial
statements of State Street Corporation which are included in its Form 10-Q for
the quarter ended March 31, 1997.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a part
of the registration statements 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 12, 1997
<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
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,712,241
<INT-BEARING-DEPOSITS> 8,198,439
<FED-FUNDS-SOLD> 5,953,144
<TRADING-ASSETS> 143,981
<INVESTMENTS-HELD-FOR-SALE> 9,364,083
<INVESTMENTS-CARRYING> 871,734
<INVESTMENTS-MARKET> 868,314
<LOANS> 4,841,614
<ALLOWANCE> 70,307
<TOTAL-ASSETS> 33,631,012
<DEPOSITS> 20,444,469
<SHORT-TERM> 9,010,866
<LIABILITIES-OTHER> 1,662,575
<LONG-TERM> 775,373
<COMMON> 83,614
0
0
<OTHER-SE> 1,654,115
<TOTAL-LIABILITIES-AND-EQUITY> 33,631,012
<INTEREST-LOAN> 76,046
<INTEREST-INVEST> 139,690
<INTEREST-OTHER> 182,302
<INTEREST-TOTAL> 398,038
<INTEREST-DEPOSIT> 108,748
<INTEREST-EXPENSE> 248,036
<INTEREST-INCOME-NET> 150,002
<LOAN-LOSSES> 3,000
<SECURITIES-GAINS> (51)
<EXPENSE-OTHER> 391,333
<INCOME-PRETAX> 130,177
<INCOME-PRE-EXTRAORDINARY> 130,177
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,438
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.05
<YIELD-ACTUAL> 5.67
<LOANS-NON> 5,860
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 72,614
<CHARGE-OFFS> 5,536
<RECOVERIES> 229
<ALLOWANCE-CLOSE> 70,307
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
