- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1998
[_] 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 StreetBoston, 02110
Massachusetts (Zip Code)
(Address of principal
executive office)
617-786-3000
(Registrant's telephone number, including area code)
--------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
The number of shares of the Registrant's Common Stock outstanding on April 30,
1998 was 161,225,888.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATE STREET CORPORATION
TABLE OF CONTENTS
PAGE
-----
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
Consolidated Statement of Income........................................ 1
Consolidated Statement of Condition..................................... 2
Consolidated Statement of Cash Flows.................................... 3
Consolidated Statement of Changes in Stockholders' Equity............... 4
Notes to Consolidated Financial Statements.............................. 5-11
Independent Accountants' Review Report.................................. 12
Item 2.Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 13-20
Item 3.Quantitative and Qualitative Disclosure About Market Risk........ 20
PART II. OTHER INFORMATION
Item 4.Submission of Matters to a Vote of Security Holders.............. 21
Item 6.Exhibits and Reports on Form 8-K................................. 21
Signatures.............................................................. 22
Exhibits
PART I.
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME--STATE STREET CORPORATION (UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
---------------
1998 1997
------- -------
(DOLLARS IN
MILLIONS,
EXCEPT PER
SHARE DATA)
FEE REVENUE
Fiduciary compensation.......................................... $ 347 $ 286
Foreign exchange trading........................................ 75 46
Servicing and processing........................................ 39 40
Other........................................................... 2 2
------- -------
Total fee revenue........................................... 463 374
NET INTEREST REVENUE
Interest revenue................................................ 497 398
Interest expense................................................ 321 248
------- -------
Net interest revenue........................................ 176 150
Provision for loan losses....................................... 5 3
------- -------
Net interest revenue after provision for loan losses........ 171 147
------- -------
Total revenue............................................... 634 521
OPERATING EXPENSES
Salaries and employee benefits.................................. 266 219
Transaction processing services................................. 50 44
Equipment....................................................... 47 38
Occupancy....................................................... 33 28
Other........................................................... 78 62
------- -------
Total operating expenses.................................... 474 391
------- -------
Income before income taxes.................................. 160 130
Income taxes.................................................... 54 44
------- -------
Net Income.................................................. $ 106 $ 86
======= =======
EARNINGS PER SHARE
Basic......................................................... $ .66 $ .54
Diluted....................................................... $ .64 .53
AVERAGE SHARES OUTSTANDING (IN THOUSANDS)
Basic......................................................... 160,870 161,336
Diluted....................................................... 164,101 164,209
CASH DIVIDENDS DECLARED PER SHARE............................... $ .12 $ .10
The accompanying notes are an integral part of these financial statements.
CONSOLIDATED STATEMENT OF CONDITION--STATE STREET CORPORATION
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
(DOLLARS IN MILLIONS)
ASSETS
Cash and due from banks.............................. $ 1,254 $ 2,411
Interest-bearing deposits with banks................. 9,917 10,080
Securities purchased under resale agreements and se-
curities borrowed................................... 7,183 5,544
Federal funds sold................................... 1,909 621
Trading account assets............................... 128 205
Investment securities (principally available for
sale)............................................... 10,064 10,375
Loans (less allowance of $89 and $83)................ 5,591 5,479
Premises and equipment............................... 546 500
Customers' acceptance liability...................... 66 45
Accrued income receivable............................ 636 566
Other assets......................................... 1,716 2,149
-------- --------
Total Assets..................................... $ 39,010 $ 37,975
======== ========
LIABILITIES
Deposits:
Non-interest-bearing................................. $ 6,887 $ 7,785
Interest-bearing:
Domestic............................................. 2,441 2,374
Non-U.S.............................................. 14,265 14,719
-------- --------
Total deposits................................... 23,593 24,878
Securities sold under repurchase agreements.......... 9,710 7,409
Federal funds purchased.............................. 233 189
Other short-term borrowings.......................... 578 609
Notes payable........................................ 44
Acceptances outstanding.............................. 66 45
Accrued taxes and other expenses..................... 788 831
Other liabilities.................................... 1,191 1,201
Long-term debt....................................... 774 774
-------- --------
Total Liabilities................................ 36,933 35,980
STOCKHOLDERS' EQUITY
Preferred stock, no par: authorized 3,500,000; issued
none................................................
Common stock, $1 par: authorized 250,000,000; issued
167,225,000
and 167,223,000..................................... 167 167
Surplus.............................................. 75 102
Retained earnings.................................... 2,005 1,920
Net unrealized gains (losses)........................ 13 11
Treasury stock, at cost (6,168,000 and 6,387,000
shares)............................................. (183) (205)
-------- --------
Total Stockholders' Equity....................... $ 2,077 $ 1,995
-------- --------
Total Liabilities and Stockholders' Equity....... $ 39,010 $ 37,975
======== ========
The accompanying notes are an integral part of these financial statements.
2
CONSOLIDATED STATEMENT OF CASH FLOWS--STATE STREET CORPORATION (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
---------- ----------
(DOLLARS IN MILLIONS)
OPERATING ACTIVITIES
Net Income............................................ $ 106 $ 86
Non-cash charges for depreciation, amortization,
provision for loan losses and deferred income taxes.. 90 64
---------- ----------
Net income adjusted for non-cash charges............ 196 150
Adjustments to reconcile to net cash provided by
operating activities:
Net change in:
Trading account assets............................ 76 111
Other, net........................................ 373 (208)
---------- ----------
Net Cash Provided by Operating Activities....... 645 53
---------- ----------
INVESTING ACTIVITIES
Payments for purchase of:
Available-for sale securities....................... (1,467) (1,524)
Held to-maturity securities......................... (653) (216)
Lease financing assets.............................. (136) (230)
Premises and equipment.............................. (77) (27)
Proceeds from:
Maturities of available-for sale securities......... 1,644 597
Maturities of held-to-maturity securities........... 650 203
Sales of available-for-sale securities.............. 25 49
Principal collected from lease financing............ 70 19
Net (payments for) proceeds from:
Interest-bearing deposits with banks................ 163 (633)
Federal funds sold, resale agreements and securities
borrowed........................................... (2,926) (185)
Loans............................................... (40) (86)
---------- ----------
Net Cash Used by Investing Activities........... (2,747) (2,033)
---------- ----------
FINANCING ACTIVITIES
Proceeds from issuance of:
Long-term debt...................................... 300
Non-recourse debt for lease financing............... 71 193
Treasury stock...................................... 7
Payments for:
Maturity of notes payable........................... (44)
Non-recourse debt for lease financing............... (82) (28)
Long-term debt...................................... (1)
Cash dividends...................................... (21) (16)
Purchase of common stock............................ (16) (81)
Net proceeds from:
Deposits............................................ (1,284) 925
Short-term borrowings............................... 2,314 777
---------- ----------
Net Cash Provided by Financing Activities....... 945 2,069
---------- ----------
Net Increase (Decrease)......................... (1,157) 89
Cash and due from banks at beginning of period........ 2,411 1,623
---------- ----------
Cash and Due From Banks at End of Period........ $ 1,254 $ 1,712
========== ==========
SUPPLEMENTAL DISCLOSURE
Interest paid....................................... $ 306 $ 247
Income taxes paid................................... $ 17 $ 20
The accompanying notes are in integral part of these financial statements.
3
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY--STATE STREET
CORPORATION (UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------------
1998 1997
----------------------------------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
COMMON STOCK
Balance at end of period (no change during
period)................................... $ 167 $ 84
-------- --------
SURPLUS
Balance at beginning of period............. 102 105
Treasury stock issued...................... (27) (2)
-------- --------
Balance at end of period................. 75 103
-------- --------
RETAINED EARNINGS
Balance at beginning of period............. 1,920 1,694
Net Income................................. 106 $ 106 86 $ 86
Cash dividends declared ($.12 and $.10 per
share).................................... (21) (16)
-------- --------
Balance at end of period................. 2,005 1,764
-------- --------
NET UNREALIZED GAINS (LOSSES)--OTHER
COMPREHENSIVE INCOME
Balance at beginning of period............. 11 12
Foreign currency translation............... (4) (4)
Net unrealized gain (loss) on available for
sale securities........................... 2 2 (27) (27)
-------- ------ -------- ------
2 (31)
------ ------
Balance at end of period................. 13 (19)
-------- --------
Comprehensive Income..................... $ 108 $ 55
====== ======
TREASURY STOCK, AT COST
Balance at beginning of period............. (205) (120)
Common stock acquired (280,000 and
1,079,600 shares)......................... (16) (81)
Treasury stock issued (852,000 and 145,876
shares)................................... 38 7
-------- --------
Balance at end of period................. (183) (194)
-------- --------
Total Stockholders' Equity............. $ 2,077 $ 1,738
======== ========
The accompanying notes are in integral part of these financial statements.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--STATE STREET CORPORATION
(UNAUDITED)
NOTE A--BASIS OF PRESENTATION
State Street Corporation ("State Street" or the "Corporation"), is a
financial services corporation that provides banking, global custody,
investment management, administration and securities processing services to
both U.S. and non-U.S. customers. State Street reports three lines of
business. Services for Institutional Investors includes accounting, custody,
daily pricing, administration, foreign exchange, cash management and
information services to support institutional investors and for large
portfolios of investment assets. Investment Management provides an extensive
array of services for managing financial assets worldwide for both
institutional and individual investors, and record keeping and investment
services for defined contribution plans. Commercial Lending activities
includes loans and other credit services for regional middle-market companies,
selected industries nationwide, broker/dealers, leasing, and international
trade finance.
The consolidated financial statements include the accounts of State Street
and its subsidiaries, including its principal subsidiary, State Street Bank
and Trust Company ("State Street 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 inter-
company 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 Consolidated Statement of
Condition caption, "Cash and due from banks".
Effective January 1, 1998, State Street adopted SFAS No. 130, "Reporting
Comprehensive Income" which establishes standards for reporting comprehensive
income. Disclosures required by SFAS No. 130 are presented in the Statement of
Changes in Stockholders' Equity and Footnote E to the Consolidated Financial
Statements. Prior period amounts have been reclassified to conform to the
current method of presentation.
In 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" was issued. This statement establishes standards for
reporting information about operating segments in annual and interim financial
statements. This statement is effective for annual periods beginning after
December 15, 1997, and for interim periods beginning after December 15, 1998.
State Street will adopt the new disclosures required by SFAS No. 131 for the
year ended December 31, 1998. State Street does not expect its current
disclosures to change significantly under SFAS No. 131.
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" was issued in March 1998. State Street
will adopt this statement effective January 1, 1999. Management is currently
evaluating the impact of this statement.
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, 1998 and
December 31, 1997, and its cash flows and consolidated results of its
operations for the three months ended March 31, 1998 and 1997, 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.
5
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:
MARCH 31, 1998 DECEMBER 31, 1997
----------------------------- -----------------------------
UNREALIZED UNREALIZED
------------ ------------ ------- -------
AMORTIZED FAIR AMORTIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ----- ------ ------ --------- ----- ------ ------
(DOLLARS IN MILLIONS)
Available for sale:
U.S. Treasury and Fed-
eral agencies......... $4,553 $15 $ 1 $4,567 $4,906 $15 $ 2 $4,919
State and political
subdivisions.......... 1,728 18 8 1,738 1,647 17 7 1,657
Asset-backed securi-
ties.................. 1,508 2 1 1,509 1,673 1 1 1,673
Collateralized mortgage
obligations........... 705 1 4 702 574 1 4 571
Other investments...... 637 9 646 654 9 1 662
------ --- --- ------ ------ --- --- ------
Total.................. $9,131 $45 $14 $9,162 $9,454 $43 $15 $9,482
====== === === ====== ====== === === ======
Held to maturity:
U.S. Treasury and Fed-
eral agencies......... $ 902 $ 1 $ 1 $ 902 $ 893 $ 1 $ 1 $ 893
====== === === ====== ====== === === ======
During the three months ended March 31, 1998 and 1997, there were less than
$1 million realized in gains and losses on sales of available for sale
securities of $25 million and $49 million, respectively.
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:
1998 1997
------ ------
(DOLLARS
IN MILLIONS)
Balance at beginning of year................................ $83 $73
Provision for loan losses................................. 5 3
Loan charge-offs.......................................... (6)
Recoveries................................................ 1
------ ------
Balance at end of period.................................... $89 $70
====== ======
6
NOTE D--REGULATORY MATTERS
The regulatory capital amounts and ratios were the following at March 31,
1998 and December 31, 1997:
REGULATORY GUIDELINES(1) STATE STREET STATE STREET BANK
------------------------------ ---------------- ------------------
WELL
MINIMUM CAPITALIZED 1998 1997 1998 1997
------------ -------------- ------- ------- -------- --------
(DOLLARS IN MILLIONS)
Risk-based ratios:
Tier 1 capital........ 4% 6% 13.6% 13.7% 12.4% 12.2%
Total capital......... 8 10 13.7 13.8 12.7 12.5
Leverage ratio.......... 3 5 5.9 5.9 5.4 5.2
Tier 1 capital........ $ 2,300 $ 2,259 $ 2,072 $ 1,996
Total capital....... 2,312 2,274 2,116 2,040
Risk-based assets:
On-balance sheet...... 12,262 12,647 12,111 12,491
Off-balance sheet..... 4,464 3,825 4,464 3,825
Market-risk equiva-
lent(2).............. 142 142
------- ------- -------- --------
Total risk-based as-
sets............... $16,868 $16,472 $ 16,717 $ 16,316
======= ======= ======== ========
- --------
(1) The regulatory designation of "well capitalized" under prompt corrective
action regulations is not applicable to bank holding companies (State
Street). Regulation Y defines well capitalized for bank holding companies
(State Street) for the purpose of determining eligibility for a
streamlined review process for acquisition proposals. For such purposes,
well capitalized requires a minimum Tier 1 risk-based capital ratio of 6%
and a minimum total risk-based capital ratio of 10%.
(2) Effective January 1, 1998, regulatory capital standards require the
addition of market risk equivalent assets to total risk based assets.
NOTE E--STOCKHOLDERS' EQUITY
The components of other comprehensive income consisted of the following for
the three months ended March 31:
1998 1997
-------------------------------- --------------------------------
PRE TAX TAX (EXPENSE) NET OF TAX PRE TAX TAX (EXPENSE) NET OF TAX
AMOUNT BENEFIT AMOUNT AMOUNT BENEFIT AMOUNT
------- ------------- ---------- ------- ------------- ----------
(DOLLARS IN MILLIONS)
Foreign currency
translation losses..... $ $ $ $ (6) $ 2 $ (4)
Unrealized gains
(losses) on available
for sale securities.... 3 (1) 2 (40) 13 (27)
7
NOTE F--NET INTEREST REVENUE
Net interest revenue consisted of the following for the three months ended
March 31:
1998 1997
---------- ----------
(DOLLARS IN MILLIONS)
INTEREST REVENUE
Deposits with banks.................................. $ 122 $ 90
Investment securities:
U.S. Treasury and Federal agencies................. 85 85
State and political subdivisions (exempt from
Federal tax)...................................... 19 18
Other investments.................................. 43 36
Loans................................................ 92 76
Securities purchased under resale agreements,
securities borrowed and Federal funds sold.......... 134 90
Trading account assets............................... 2 3
---------- ----------
Total interest revenue........................... 497 398
---------- ----------
INTEREST EXPENSE
Deposits............................................. 154 109
Other borrowings..................................... 152 129
Long-term debt....................................... 15 10
---------- ----------
Total interest expense........................... 321 248
---------- ----------
Net interest revenue............................. $ 176 $ 150
========== ==========
NOTE G--OPERATING EXPENSES--OTHER
The other category of operating expenses consisted of the following for the
three months ended March 31:
1998 1997
------ ------
(DOLLARS
IN MILLIONS)
Professional services........................................ $ 22 $ 16
Advertising and sales promotion.............................. 13 11
Postage, forms and supplies.................................. 8 7
Telecommunications........................................... 8 6
Other........................................................ 27 22
------ ------
Total operating expenses--other............................ $ 78 $ 62
====== ======
NOTE H--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:
1998 1997
------ ------
(DOLLARS
IN MILLIONS)
Current....................................................... $ 16 $ 12
Deferred...................................................... 38 32
------ ------
Total provision............................................. $ 54 $ 44
====== ======
The effective tax rate was 33.8% for the first quarter of 1998, up from 33.6%
in the first quarter of 1997.
8
NOTE I--EARNINGS PER SHARE
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
----------- -----------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA;
SHARES IN THOUSANDS)
Net Income.......................................... $ 106 $ 86
=========== ===========
Basic Average Shares................................ 160,870 161,336
Stock options and stock awards.................... 2,294 1,773
7.75% convertible subordinated debentures......... 937 1,100
----------- -----------
Dilutive average shares............................. 164,101 164,209
=========== ===========
Basic earnings per share............................ $ .66 $ .54
=========== ===========
Diluted earnings per share.......................... $ .64 $ .53
=========== ===========
NOTE J--COMMITMENTS AND CONTINGENT LIABILITIES
State Street provides banking, global custody, investment management,
administration and securities processing services to both U.S. and Non U.S.
customers. Assets under custody and assets under management are held by State
Street in a fiduciary or custodial capacity and 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 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,
1998, 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 K--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.
9
NOTE K--OFF-BALANCE SHEET FINANCIAL INSTRUMENTS, INCLUDING DERIVATIVES
(CONTINUED)
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,
1998 1997
--------- ------------
(DOLLARS IN MILLIONS)
Trading:
Interest rate contracts:
Swap agreements..................................... $ 830 $ 1,015
Options and caps purchased.......................... 37 38
Options and caps written............................ 188 186
Futures--short position............................. 1,900 594
Options on futures purchased........................ 50 5
Options on futures written.......................... 30 8
Foreign exchange contracts:
Forward, swap and spot.............................. 104,425 91,742
Options purchased................................... 3,804 144
Options written..................................... 4,023 138
Balance Sheet Management:
Interest rate contracts:
Swap agreements................................... 489 243
Options and caps purchased........................ 30 50
Foreign exchange contracts:
Forward, swap and spot............................ 44
The following table represents the fair value of financial instruments held
or issued by State Street for trading purposes as of and for the three months
ended:
MARCH 31, 1998 DECEMBER 31, 1997
-------------- ------------------
AVERAGE AVERAGE
FAIR FAIR FAIR FAIR
VALUE VALUE VALUE VALUE
------ ------- -------- ---------
(DOLLARS IN MILLIONS)
Foreign exchange contracts:
Contracts in a receivable position...... $ 989 $961 $ 1,037 $ 1,064
Contracts in a payable position......... 1,078 959 1,036 1,087
Other financial instrument contracts:
Contracts in a receivable position...... 3 3 3 7
Contracts in a payable position......... 1 2 2 5
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.
10
Credit-related financial instruments include commitments to extend credit,
standby letters of credit, letters of credit and indemnified securities on
loan. 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,
1998 1997
--------- ------------
(DOLLARS IN MILLIONS)
Indemnified securities on loan........................ $69,777 $57,465
Loan commitments...................................... 7,017 7,294
Standby letters of credit............................. 1,577 1,821
Letters of credit..................................... 186 179
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 additional collateral
is necessary. State Street held as collateral, cash and U.S. Government
securities totaling $71.9 billion and $59 billion for indemnified securities
on loan at March 31, 1998 and December 31, 1997, respectively.
Loan and letter-of-credit commitments are subject to the same credit
policies and reviews as loans. 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, the total commitment amounts do not necessarily represent future cash
requirements.
11
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, 1998, and the related consolidated
statements of income, cash flows and changes in stockholders' equity for the
three-month periods ended March 31, 1998 and 1997. 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 Corporation
as of December 31, 1997 (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 13,
1998, we expressed an unqualified opinion on those consolidated financial
statements.
Ernst & Young LLP
Boston, Massachusetts
April 13, 1998
12
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SUMMARY
First quarter results represent strong year-over-year revenue growth in all
areas of State Street's business, and the Corporation continues to record new
business, although not at the same record-setting level recorded through much
of 1997. The long-term trends driving demand for services offered by State
Street continue, however, and the Corporation continues to exceed its
financial goals and its long-term historic growth rates; as a result,
management anticipates State Street's growth in 1998 to be more in keeping
with its long-term historic performance.
Earnings per share for the quarter were $.64 on a diluted basis, an increase
of 21% from $.53 in the first quarter of 1997. Revenue grew 21%, from $531
million to $644 million. Net income was $106 million, up from $86 million a
year ago. Return on stockholders' equity was 21.0%.
CONDENSED INCOME STATEMENT--TAXABLE EQUIVALENT BASIS
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1997 CHANGE %
--------- --------- ------ ---
(DOLLARS IN MILLIONS, EXCEPT
PER SHARE DATA)
Fee revenue:
Fiduciary compensation......................... $ 347 $ 286 $ 61 21
Foreign exchange trading....................... 75 46 29 62
Servicing and processing....................... 39 40 (1) (2)
Other.......................................... 2 2 (8)
--------- --------- ----
Total fee revenue............................ 463 374 89 24
Net interest revenue............................. 186 160 26 17
Provision for loan losses........................ 5 3 2 67
--------- --------- ----
Total revenue................................ 644 531 113 21
Operating expenses............................... 474 391 83 21
--------- --------- ----
Income before taxes.......................... 170 140 30 21
Income taxes..................................... 54 44 10 22
Taxable equivalent adjustment.................... 10 10
--------- --------- ----
Net income................................... $ 106 $ 86 $ 20 23
========= ========= ====
Earnings Per Share
Basic.......................................... $ .66 $ .54 $.12 22
Diluted........................................ .64 .53 .11 21
(Percentage change based on dollars in thousands, except per share data)
TOTAL REVENUE
Total revenue for the quarter was $644 million, up $113 million, or 21%,
from a year ago, reflecting strong growth in all lines of business. Total
revenue is comprised of fee revenue and net interest revenue.
FEE REVENUE
Fee revenue, which comprised 72% of total revenue, was $463 million, up 24%
from a year ago.
Fiduciary compensation, the largest component of fee revenue, is generated
by services for institutional investors and investment management. Fiduciary
compensation was $347 million, up $61 million, or 21%, from
13
a year ago. This increase was driven by expanded and new customer
relationships and a favorable environment--increasing securities values,
strong cash inflows to U.S. mutual funds, and, although to a lesser extent
than in previous quarters, increased cross-border investing from the United
States. The economic turmoil in Southeast Asia in the fourth quarter resulted
in a less favorable first quarter mix of non-U.S. mutual fund assets and lower
revenue from managing emerging market funds.
Services for institutional investors, which include accounting, custody,
record-keeping and information services, reflected broad-based growth. Total
assets under custody increased 44% from a year ago to $4.4 trillion. Using
broad assumptions, management estimates that approximately 60% of the increase
was due to the impact of higher securities market values, and 40% was due to
additional contributions to mutual funds, pension plans and other portfolios,
and to new business.
Revenue from mutual funds reflected new business from both existing
customers and new customers, and asset growth. Total mutual fund assets under
custody increased 45%, with year-over-year growth in U.S. assets and a 24%
increase in non-U.S. assets. Revenue from servicing offshore funds and from
mutual fund administration reflected strong growth. The number of funds for
which State Street provides fund administration more than tripled, and assets
of those funds were seven times greater than a year ago. The number of
offshore funds State Street services was up 22% and offshore fund assets
increased 66%.
Revenue from servicing U.S. pension plans increased primarily due to new
business, with additional revenue growth from portfolio accounting and
securities lending services.
Outside the United States, revenue growth was driven by additional business
from existing customers and from new customers. Assets under custody for non-
U.S. customers increased 30% from a year ago.
Revenue from investment management, delivered through State Street Global
Advisors, reflected growth across all services--investment management for
institutional investors, record-keeping and investment services for defined
contribution plans, and investment services for high-net-worth individuals.
Revenue from managing assets for institutional investors was driven primarily
by new relationships, additional contributions from existing customers and
higher securities values. The two products contributing the greatest increase
in revenue were international passive and fixed income, including short-term
cash. Total assets managed increased 43% from a year ago to $458 billion, with
about 40% of this growth due to additional funding from customers and new
customers. The remainder was from increased market values.
Foreign exchange trading revenue was $75 million, up $29 million from a year
ago and nearly unchanged from the third and fourth quarter of 1997. The higher
level of foreign exchange revenue is the result of both new business worldwide
and active currency markets in both emerging and mature markets. New business
is attributable to State Street's on-line research, trade execution, and trade
confirmation services, which are encouraging existing customers to expand
relationships and attracting new customers. In the first quarter, major
currencies were about 14% more volatile than in the first quarter of 1997. The
volume of trades, as measured in dollars, increased 22% from a year ago.
Servicing and processing fee revenue was $39 million in the first quarter
compared to $40 million a year ago. Excluding the impact of revenue from a
non-strategic business which was sold in the second quarter of 1997, servicing
and processing revenue increased 20% from a year ago. Revenue from investment
banking, software licensing and maintenance and brokerage services accounted
for the increase.
NET INTEREST REVENUE
Taxable equivalent net interest revenue for the first quarter was $186
million, up $26 million, or 17%, from a year ago due to a $6.8 billion, or
23%, increase in interest-earning assets. State Street uses its balance sheet
to support the needs of institutional investors. These customers, in
conjunction with their worldwide investment activities, made increased use of
deposits and securities sold under repurchase agreements, which were invested
primarily in low-risk assets by State Street. Strong growth in non-U.S.
deposits, up $3.7 billion, or 34%, and non-interest-bearing deposits, up $900
million, or 17%, contributed importantly to the revenue increase.
14
In the first quarter, loans increased $918 million, or 19%, with over half
the increase in traditional loans. Securities settlement advances to
institutional investors increased 26% and leases were up $232 million or 30%.
THREE MONTHS ENDED MARCH 31,
------------------------------
1998 1997
-------------- --------------
AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
-------- ----- -------- -----
(DOLLARS IN MILLIONS)
Interest-earning assets..................... $ 35,980 5.72% $ 29,164 5.67%
Interest-bearing liabilities................ 29,815 4.37 23,932 4.20
----- -----
Excess of rates earned over rates paid...... 1.35% 1.47%
===== =====
Net Interest Margin......................... 2.09% 2.22%
===== =====
OPERATING EXPENSES
Operating expenses of $474 million, were up $83 million, or 21%, from the
first quarter of 1997 supporting business expansion and investments in
capabilities and capacity for future growth. Salaries and employee benefits
were $266 million, up $47 million, or 21%, due to additional staff supporting
business growth. The after-tax profit margin was 16.4% in the first quarter of
1998, up from 16.2% for the full year 1997.
Resolution 2000
Many computer systems and software products worldwide and throughout all
industries will not function properly as the year 2000 approaches unless
changed, due to a once-common programming standard that represents years using
two-digits. This is the "Year 2000" problem that has received considerable
media coverage. State Street implemented a comprehensive program beginning in
1996 that addresses Year 2000 compliance and is supported by a corporate-wide
structure of compliance teams, a central program management office, and a
governance and oversight structure.
As part of this program, State Street has identified those systems and
applications that require modification, redevelopment or replacement. State
Street's Resolution 2000 program has established appropriate testing
procedures and a schedule for completion of this work. State Street's
Resolution 2000 program also establishes standards and deadlines for the
Corporation's vendors and other third-party providers, and procedures for
determining reasonable alternatives to those third-party providers, including
subcustodians, who do not meet compliance standards.
State Street's goal is to be Year 2000 compliant by December 31, 1998 with
respect to its internal systems. Testing and integration of third-party
providers' systems will continue into 1999. As of March 31, 1998 the program
is well under way.
State Street is fully committed to achieving its compliance goal. This
program requires hiring staff and consultants, purchasing equipment, and
incurring other expenses. Management estimates that the total cost of the
program for the five-year-period 1996-2000 will be less than 2% of total
operating expenses, or in aggregate, less than $200 million. The Corporation
expects to absorb these expenses within normal spending levels.
European Economic and Monetary Union
State Street has developed and is currently implementing a plan to service
customer accounting and other needs relating to the adoption by certain
members of the European Economic and Monetary Union of a common currency, the
Euro. Management estimates that the costs to State Street associated with the
phase in of and ultimate redenomination to the Euro will not be material and
will be absorbed within normal spending levels.
15
CREDIT QUALITY
At March 31, 1998, total loans were $5.6 billion, 14% of the balance sheet.
In the first quarter, the provision for loan losses was $5 million, up from $3
million a year ago to support growth in the loan portfolio. There were no
material changes in overall credit quality during the quarter. During the
quarter, the allowance for loan losses increased from $83 million to $89
million. Non-performing assets declined from $6 million to $4 million.
TAXES
Taxes were $54 million, up from $44 million a year ago. The effective tax
rate was 33.8%, which compares to 33.6 % for the first quarter of 1997.
LINES OF BUSINESS
Following is a summary of line of business operating results for the three
months ended March 31:
SERVICES FOR
INSTITUTIONAL INVESTMENT COMMERCIAL
INVESTORS MANAGEMENT LENDING
-------------- ------------ ------------
1998 1997 1998 1997 1998 1997
------ ------ ----- ----- ----- -----
TAXABLE EQUIVALENT BASIS
(DOLLARS IN MILLIONS)
Fee revenue......................... $339 $270 $108 $92 $ 16 $ 12
Net interest revenue................ 128 110 9 7 44 40
------ ------ ----- ---- ----- -----
Total revenue..................... 467 380 117 99 60 52
Operating expenses.................. 352 289 98 80 24 22
------ ------ ----- ---- ----- -----
Operating profit.................. $115 $ 91 $ 19 $19 $ 36 $ 30
====== ====== ===== ==== ===== =====
Pretax margin....................... 25% 24% 16% 20% 60% 57%
Percentage contribution............. 68% 65% 11% 11% 21% 21%
Average assets (billions)........... $ 35.2 $ 28.6 $ .8 $ .6 $ 3.9 $ 3.6
Services for Institutional Investors
Services for institutional investors include accounting, custody, daily
pricing and information services for large portfolios of investment assets.
Customers include mutual funds and other collective investment funds,
corporate and public pension plans, corporations, investment managers, non-
profit organizations, unions, and other holders of investment assets.
Institutional investors are offered other State Street services, including
foreign exchange, cash management, securities lending, fund administration,
record keeping, credit services, and deposit and short-term investment
facilities. These services support institutional investors in developing and
executing their strategies, enhancing their returns, and evaluating and
managing risk. Revenue from this line of business comprised 74% of State
Street's total revenue for the first quarter.
Total revenue from services for institutional investors increased to $467
million, up $87 million or 23% from $380 million in 1997. The $87 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 25%. 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, up 16%, 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 $352 million, 22% higher than a year ago, due to
business growth and investments for future growth, and reflecting
acquisitions. Operating profit was $115 million, an increase of $24 million,
or 26%, from a year ago and reflected strong revenue growth as well as an
improvement in the pre-tax margin.
16
Investment Management
State Street manages financial assets worldwide for both institutions and
individuals and provides related services, including participant record-
keeping for defined contribution plans. Investment management feature a broad
array of services, including passive and active equity, money market, and
fixed income strategies. Revenue from this line of business comprised 18% of
State Street's total revenue for the first quarter.
Revenue from investment management grew 18% to $117 million, due to revenue
growth across the product line. Operating expenses increased 23% reflecting
additional staff, facilities and equipment to support business growth.
Operating profit was $19 million, unchanged from the first quarter of 1997.
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 leverage
leasing and international trade finance. Revenue from this line of business
comprised 8% of State Street's total revenue for the first quarter.
Revenue from commercial lending grew to $60 million, up 15% from $52 million
in the first quarter a year ago, due primarily to 19% increase in loans. Loans
to New England businesses and specialty industries nationwide, leveraged
leases, and international trade finance all grew.
Operating expenses increased 9%, supporting business growth. Operating
profit was $36 million, an increase of $6 million, or 20% from 1997.
NEW ACCOUNTING DEVELOPMENTS
Information related to new accounting developments appears in Note A to the
Consolidated Financial Statements.
CAPITAL AND LIQUIDITY
State Street ensures it is well capitalized in order to support its
customers. Capital levels provide financial flexibility as well, which
facilitates funding corporate growth and other business needs.
Capital
As a state chartered bank and member of the Federal Reserve System, State
Street Bank, 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
State Street 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 12.4%, State Street Bank's Tier 1 risk-based
capital ratio significantly exceeds the regulatory minimum of 4%. State
Street's total risk-based ratio of 13.7% is among the highest for U.S. bank
holding companies. See Note D to the Consolidated Financial Statements for
further information. State Street purchased 280,000 shares of its stock during
the first quarter of 1998. As of March 31, 1998, 2.7 million shares were
authorized to be purchased.
Liquidity
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
17
assets, the sale of securities and payments of loans. Customer deposits and
other funds provide a multi-currency, geographically-diverse source of
liquidity.
State Street maintains a large portfolio of liquid assets. At March 31,
1998, State Street's liquid assets were 78% of total assets.
TRADING ACTIVITIES: FOREIGN EXCHANGE AND INTEREST RATE SENSITIVITY
As part of its trading activities, the Corporation assumes positions in both
the foreign exchange and interest rate markets by buying and selling cash
instruments and using financial derivatives, including forward foreign
exchange contracts, foreign exchange and interest rate options, and interest
rate swaps. As of March 31, 1998, the notional amount of these derivative
instruments was $115.3 billion, of which $104.4 billion was foreign exchange
forward contracts. Long and short foreign exchange forward positions are
closely matched to minimize currency and interest rate risk. All foreign
exchange contracts are valued daily at current market rates.
The corporation uses a variety of risk measurement and estimation techniques
including value at risk. Value at risk is an estimate of potential loss for a
given period of time within a stated statistical confidence interval. State
Street estimates value at risk daily for all material trading positions using
a methodology based on the distribution of historical market movements. The
Corporation has adopted standards for estimating value at risk, and maintains
capital for market risk, in accordance with the Federal Reserve's Capital
Adequacy Guidelines for market risk. Value at risk is estimated for a 99% one-
tail confidence interval and an assumed one-day holding period using an
historical observation period of one year. A 99% one-tail confidence interval
implies that daily trading losses should not exceed the estimated value at
risk more that 1% of the time, or approximately three days out of the year.
The methodology takes into account observed correlations between interest
rates and foreign exchange rates, and the resulting diversification benefits
provided from the mix of the corporation's trading positions.
Like all quantitative measures, value at risk is subject to certain
limitations and assumptions inherent to the methodology. State Street's
methodology uses an assumption of normal distribution of market returns. The
estimate is calculated using static portfolios consisting of positions held at
the end of the trading day in Boston. Implicit in the estimate is the
assumption that no intraday action is taken by management during adverse
market movements. As a result, the methodology does not represent risk
associated with intraday changes in positions or intraday price volatility.
The following table presents State Street's market risk for its trading
activities as measured by its value at risk methodology:
VALUE AT RISK FOR MARCH 1998
AVERAGE MAXIMUM MINIMUM
------- ------- -------
(DOLLARS IN MILLIONS)
Foreign exchange contracts........................... $.5 $1.2 $.2
Interest rate contracts.............................. .1 .3
State Street compares actual daily profit and losses from trading activities
to estimated one-day value at risk. During the first quarter 1998, State
Street did not experience any material foreign exchange trading loss in excess
of its end of day value at risk estimate.
FACTORS AFFECTING FUTURE RESULTS
From time to time information provided by State Street, statements made by
its employees, or information included in its filings with the Securities and
Exchange Commission (including this Form 10-Q), may contain statements which
are not historic facts (so-called "forward looking statements"), including
statements about the Corporation's confidence and strategies and its
expectation about revenues and market growth, new technologies,
18
services and opportunities, and earnings. These statements may be identified
by such forward looking terminology as "expect", "look", "believe",
"anticipate", "may", "will", or similar statements or variations of such
terms. These forward-looking statements involve certain risks and
uncertainties which could cause actual results to differ materially. Factors
that may cause such differences include, but are not limited to, the factors
discussed in this section and elsewhere in this Form 10-Q. Each of these
factors, and others, are also discussed from time to time in the Corporation's
other filings with the Securities and Exchange Commission, including its
report on Form 10-K.
Cross-border investing. Cross-border investing by customers worldwide
benefits State Street's revenue. Future revenue may increase or decrease
depending upon the extent of cross-border investments made by customers or
future customers.
Savings rate of individuals. State Street benefits from the savings of
individuals that are invested in mutual funds or defined contribution plans.
Changes in savings rates or investment styles may affect revenue.
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 the Corporation's fees
are based on the value of assets under custody and management, fluctuations in
worldwide securities market valuations will affect revenue.
Dynamics of markets served. Changes in markets served, 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
can affect revenue. In general, State Street benefits from an increase in the
volume of financial market transactions serviced.
State Street provides services worldwide. Global and regional economic
factors and changes or potential changes in laws and regulations affecting the
Corporation's business, including changes in monetary policy, could also
affect results of operations.
Interest rates. Market interest rate levels, the shape of the yield curve
and the direction of interest rate changes affect both net interest revenue
and fiduciary compensation from securities lending. In a stable rate
environment, State Street benefits from high interest rates, because it has a
larger amount of interest-earning assets than interest-bearing liabilities,
and from a steeper curve. All else being equal, in the short term State Street
benefits from falling interest rates and is negatively affected by rising
rates because interest-bearing liabilities re-price sooner than interest-
earning assets.
Volatility of currency markets. The degree of volatility in foreign exchange
rates can affect the amount of foreign exchange trading revenue.
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 and investment management services. The pace of pension
reform may affect the pace of revenue growth.
Pricing/competition. Future prices the Corporation is able to obtain for its
products may increase or decrease from current levels depending upon demand
for its products, its competitors' activities, and the introduction of new
products into the marketplace.
Pace of new business. The pace at which existing and new customers use
additional services and assign additional assets to State Street for
management or custody will affect future results.
Business mix. Changes in business mix, including the mix of U.S. and non-
U.S. business, will affect future results.
19
Rate of technological change. Technological change creates opportunities for
product differentiation and reduced costs as well as the possibility of
increased expenses. State Street's financial performance depends in part on
its ability to develop and market net and innovative services and to adopt or
develop new technologies that differentiate State Street's products or provide
cost efficiencies.
Year 2000 modifications. The costs and projected completion date of State
Street's Resolution 2000 program are estimates. Factors that may cause
material differences include the availability and cost of systems and other
personnel, non-compliance of third-party providers, and similar uncertainties.
If necessary modifications and conversions are not completed in time, the Year
2000 issue could affect State Street's performance.
Acquisitions and alliances. Acquisitions of complementary businesses and
technologies and strategic alliances are an active part of State Street's
overall business strategy, and the Corporation has completed several
acquisitions in recent years. However, there can be no assurance that
services, technologies, key personnel, and businesses of acquired companies
will be effectively assimilated into State Street's business or service
offerings or that alliances will be successful.
PART I. ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See information under the caption "Trading Activities: Foreign Exchange and
Interest Rate Sensitivity" on page 18.
20
PART II--OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Registrant's annual meeting of stockholders was held on April 15, 1998. At
the Meeting, the following nominees for Director were elected:
1. Election of Six Directors:
NUMBER OF SHARES
---------------------
FOR WITHHELD
---------------------
David P. Gruber 136,601,413 2,341,195
Charles R. LaMantia 136,626,598 2,316,010
Alfred Poe 136,609,876 2,332,732
David A. Spina 136,591,882 2,350,727
Diana Chapman Walsh 136,575,771 2,366,838
Robert E. Weissman 136,623,137 2,319,472
The following directors continue in office: Tenley E. Albright, M.D., I.
MacAllister Booth, Marshall N. Carter, James I. Cash, Jr., Truman S. Casner,
Nader F. Dareshori, Arthur L. Goldstein, Charles F. Kaye, John M. Kucharski,
David B. Perini, Dennis J. Picard, and Bernard W. Reznicek.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
EXHIBIT NUMBER PAGE OF THIS REPORT
-------------- -------------------
12 Ratio of Earnings to Fixed Charges..... 23
Letter regarding unaudited interim
15 financial information.................. 24
27 Financial data schedule................ 25
(b) Reports on Form 8-K
None
21
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 8, 1998 /s/ Ronald L. O'Kelley
By: _________________________________
RONALD L. O'KELLEY
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
Date: May 8, 1998 /s/ Rex S. Schuette
By: _________________________________
REX S. SCHUETTE
SENIOR VICE PRESIDENT AND CHIEF
ACCOUNTING OFFICER
22