<PAGE>
================================================================================
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 JUNE 30, 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)
-----------------
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 July 31, 1997 was 160,587,480.
================================================================================
<PAGE>
STATE STREET CORPORATION
Table of Contents
Page
PART I. FINANCIAL INFORMATION .........
- ------------------------------
Item 1. Financial Statements
Consolidated Statements of Income................................... 1 - 2
Consolidated Statement of Condition................................. 3
Consolidated Statement of Cash Flows................................ 4
Consolidated Statement of Changes in Stockholders' Equity........... 5
Notes to Consolidated Financial Statements.......................... 6 - 12
Independent Accountants' Review Report.............................. 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 14 - 20
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.. 21-22
Item 5. Other Information.................................... 22
Item 6. Exhibits and Reports on Form 8-K..................... 22
Signatures.......................................................... 23
Exhibits ........................................................... 24 - 43
<PAGE>
PART I. ITEM 1.
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME - STATE STREET CORPORATION (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share data) Three months ended June 30, 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FEE REVENUE
Fiduciary compensation................................................................. $ 308 $ 256
Foreign exchange trading............................................................... 50 30
Servicing and processing .............................................................. 39 29
Other 7 8
--------- ---------
Total fee revenue................................................................ 404 323
NET INTEREST REVENUE
Interest revenue....................................................................... 425 342
Interest expense....................................................................... 271 208
--------- ---------
Net interest revenue............................................................. 154 134
Provision for loan losses.............................................................. 3 2
--------- ---------
Net interest revenue after provision for loan losses............................. 151 132
--------- ---------
TOTAL REVENUE.................................................................... 555 455
OPERATING EXPENSES
Salaries and employee benefits......................................................... 235 189
Transaction processing services........................................................ 46 42
Equipment.............................................................................. 38 35
Occupancy.............................................................................. 29 25
Other 71 54
--------- ---------
Total operating expenses......................................................... 419 345
--------- ---------
Income before income taxes....................................................... 136 110
Income taxes........................................................................... 44 39
--------- ---------
NET INCOME....................................................................... $ 92 $ 71
========= =========
EARNINGS PER SHARE
Primary.......................................................................... $ .57 $ .44
Fully diluted.................................................................... .56 .44
AVERAGE SHARES OUTSTANDING (in thousands)
Primary.......................................................................... 162,291 163,118
Fully diluted.................................................................... 163,452 164,251
CASH DIVIDENDS DECLARED PER SHARE...................................................... $ .11 $ .095
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- -------------------------------------------------------------------------------
PART I. ITEM 1.
- -------------------------------------------------------------------------------
FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED STATEMENT OF INCOME - STATE STREET CORPORATION (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share data) Six months ended June 30, 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FEE REVENUE
Fiduciary compensation................................................................. $ 594 $ 490
Foreign exchange trading............................................................... 96 63
Servicing and processing .............................................................. 79 57
Other 9 20
-------- ---------
Total fee revenue................................................................ 778 630
NET INTEREST REVENUE
Interest revenue....................................................................... 823 688
Interest expense....................................................................... 519 423
-------- ---------
Net interest revenue............................................................. 304 265
Provision for loan losses.............................................................. 6 4
-------- ---------
Net interest revenue after provision for loan losses............................. 298 261
-------- ---------
TOTAL REVENUE.................................................................... 1,076 891
OPERATING EXPENSES
Salaries and employee benefits......................................................... 454 370
Transaction processing services........................................................ 90 79
Equipment.............................................................................. 77 67
Occupancy.............................................................................. 57 50
Other 132 107
-------- ---------
Total operating expenses......................................................... 810 673
-------- ---------
Income before income taxes....................................................... 266 218
Income taxes........................................................................... 88 77
-------- ---------
NET INCOME....................................................................... $ 178 $ 141
======== =========
EARNINGS PER SHARE
Primary.......................................................................... $ 1.10 $ .86
Fully diluted.................................................................... 1.09 .86
AVERAGE SHARES OUTSTANDING (in thousands)
Primary.......................................................................... 162,693 163,823
Fully diluted.................................................................... 163,838 165,037
CASH DIVIDENDS DECLARED PER SHARE...................................................... $ .21 $ .185
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED STATEMENT OF CONDITION - STATE STREET CORPORATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
JUNE 30, December 31,
(Dollars in millions) 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks............................................................ $ 1,989 $ 1,623
Interest-bearing deposits with banks............................................... 8,776 7,565
Securities purchased under resale agreements and securities borrowed............... 3,555 4,613
Federal funds sold................................................................. 3,047 1,155
Trading account assets............................................................. 126 255
Investment securities (principally available for sale) ............................ 10,594 9,387
Loans (less allowance of $74 and $73).............................................. 5,453 4,640
Premises and equipment............................................................. 465 468
Customers' acceptance liability.................................................... 99 35
Accrued income receivable.......................................................... 490 442
Other assets....................................................................... 2,092 1,341
-------- --------
TOTAL ASSETS................................................................. $ 36,686 $ 31,524
======== ========
LIABILITIES
Deposits:
Noninterest-bearing................................................................ $ 9,036 $ 6,395
Interest-bearing:
Domestic........................................................................ 2,148 2,071
Non-U.S......................................................................... 13,674 11,053
-------- --------
Total deposits............................................................... 24,858 19,519
Securities sold under repurchase agreements........................................ 6,625 7,387
Federal funds purchased ........................................................... 152 117
Other short-term borrowings........................................................ 514 649
Notes payable...................................................................... 87 86
Acceptances outstanding............................................................ 100 35
Accrued taxes and other expenses................................................... 730 657
Other liabilities.................................................................. 1,013 823
Long-term debt..................................................................... 775 476
-------- --------
TOTAL LIABILITIES............................................................ 34,854 29,749
STOCKHOLDERS' EQUITY
Preferred stock, no par: authorized 3,500,000; issued none......................... - -
Common stock, $1 par: authorized 250,000,000;
issued 167,424,000 and 83,615,000............................................ 167 84
Surplus............................................................................ 102 105
Retained earnings.................................................................. 1,751 1,694
Net unrealized gain on available-for-sale securities............................... 10 12
Treasury stock, at cost (6,850,000 and 2,461,000 shares)........................... (198) (120)
-------- --------
TOTAL STOCKHOLDERS' EQUITY................................................... 1,832 1,775
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................... $ 36,686 $ 31,524
======== ========
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS - STATE STREET CORPORATION (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
(Dollars in millions) Six months ended June 30, 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income ................................................................................ $ 178 $ 141
Noncash charges for depreciation, amortization, provision for loan losses and
deferred income taxes ................................................................... 140 135
-------- --------
Net income adjusted for noncash charges.............................................. 318 276
Adjustments to reconcile to net cash (used) provided by operating activities:
Securities gains, net................................................................ - (3)
Net change in:
Trading account assets.......................................................... 129 248
Other, net...................................................................... (606) (199)
-------- --------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES........................... (159) 322
-------- --------
INVESTING ACTIVITIES Payments for purchases of:
Available-for-sale securities........................................................ (2,706) (4,032)
Held-to-maturity securities.......................................................... (441) (545)
Lease financing assets............................................................... (1,093) (378)
Premises and equipment............................................................... (56) (46)
Proceeds from:
Maturities of available-for-sale securities.......................................... 1,335 1,720
Maturities of held-to-maturity securities............................................ 424 529
Sales of available-for-sale securities............................................... 173 192
Principal collected from lease financing............................................. 39 42
Net (payments for) proceeds from:
Interest-bearing deposits with banks................................................. (1,211) (1,784)
Federal funds sold, resale agreements and securities borrowed........................ (834) 1,509
Loans................................................................................ (548) (174)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES...................................... (4,918) (2,967)
-------- --------
FINANCING ACTIVITIES
Proceeds from issuance of:
Long-term debt....................................................................... 300 150
Nonrecourse debt for lease financing................................................. 878 281
Notes payable........................................................................ 1 177
Treasury stock....................................................................... 3 6
Payments for:
Maturity of notes payable............................................................ - (188)
Nonrecourse debt for lease financing................................................. (92) (49)
Long-term debt....................................................................... (1) (1)
Cash dividends....................................................................... (34) (30)
Purchase of common stock............................................................. (89) (102)
Net proceeds from (payments for):
Deposits............................................................................. 5,339 2,700
Short-term borrowings................................................................ (862) 116
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES.................................. 5,443 3,060
-------- --------
NET INCREASE............................................................... 366 415
Cash and due from banks at beginning of period............................................. 1,623 1,422
-------- --------
CASH AND DUE FROM BANKS AT END OF PERIOD................................... $ 1,989 $ 1,837
======== ========
SUPPLEMENTAL DISCLOSURE
Interest paid........................................................................ $ 587 $ 413
Income taxes paid.................................................................... 45 56
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are in integral part of these financial statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - STATE STREET CORPORATION (UNAUDITED)
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share data) Six months ended June 30, 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK
Balance at beginning of period.............................................................. $ 84 $ 83
Stock dividend, two-for-one split........................................................... 83 -
-------- -------
Balance at end of period.............................................................. 167 83
-------- -------
SURPLUS
Balance at beginning of period.............................................................. 105 40
Treasury stock issued....................................................................... (3) (3)
-------- -------
Balance at end of period.............................................................. 102 37
-------- -------
RETAINED EARNINGS
Balance at beginning of period.............................................................. 1,694 1,465
Net Income.................................................................................. 178 141
Stock dividend, two-for-one split........................................................... (83) -
Cash dividends declared ($.21 and $.185 per share).......................................... (34) (30)
Currency translation........................................................................ (4) (2)
-------- -------
Balance at end of period.............................................................. 1,751 1,574
-------- -------
NET UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES
Balance at beginning of period.............................................................. 12 13
Changes in unrealized gain (loss)........................................................... (2) (29)
-------- -------
Balance at end of period.............................................................. 10 (16)
-------- -------
TREASURY STOCK, AT COST
Balance at beginning of period.............................................................. (120) (13)
Common stock acquired (2,359,200 and 4,367,800 shares)..................................... (89) (102)
Treasury stock issued (430,262 and 629,478 shares).......................................... 11 13
-------- -------
Balance at end of period.............................................................. (198) (102)
-------- -------
TOTAL STOCKHOLDERS' EQUITY............................................................ $ 1,832 $ 1,576
======= =======
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
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,
credit facilities and other banking services for regional middle-market
companies, for nationwide companies in selected industries and for
broker/dealers. Other credit facilities 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 six months ended June 30, 1997 and 1996, long-term debt
converted into common stock was $35,000 and $30,000, 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 June 30, 1997 and 1996 would have resulted in basic
earnings per share of $.57 and $.44, respectively, and diluted earnings per
share of $.56 and $.44, respectively. Computing earnings per share in accordance
with the provisions of this statement for the six months ended June 30, 1997 and
1996 would have resulted in basic earnings per share of $1.11 and $.87,
respectively, and diluted earnings per share of $1.09 and $.86, respectively.
In February 1997, SFAS No. 129, "Disclosure of Information about Capital
Structure" was issued, which will be effective for 1997 financial statements.
State Street's current disclosures comply with the provisions of this statement.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was issued. This
statement establishes standards for reporting comprehensive income and its
components and requires this disclosure be added as a new section in a financial
statement. This statement is effective for fiscal years beginning after December
31, 1997. State Street will adopt SFAS No. 130 for the year beginning January 1,
1998.
In June 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 SFAS No. 131 for the year ending December 31, 1998, and
for interim periods beginning January 1, 1999.
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 June 30, 1997 and December 31, 1996, and its
cash flows and consolidated results of its operations for the three months and
six months ended June 30, 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>
- -------------------------------------------------------------------------------------------------------------------------------
JUNE 30, 1997 December 31, 1996
AMORTIZED UNREALIZED FAIR Amortized Unrealized Fair
(Dollars in millions) COST GAINS LOSSES VALUE Cost Gains Losses Value
- ---------------------------------------------------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale (at fair value):
U.S. Treasury and Federal agencies............ $ 5,261 $ 15 $ 8 $ 5,268 $ 4,630 $ 18 $ 5 $ 4,643
State and political subdivisions.............. 1,687 10 5 1,692 1,557 10 8 1,559
Asset-backed securities....................... 1,505 2 1 1,506 1,198 3 1 1,200
Collateralized mortgage obligations........... 583 1 8 576 638 1 8 631
Other investments............................. 663 12 - 675 485 12 2 495
------- ---- ---- ------- ------- ---- ----- -------
Total............................................. $ 9,699 $ 40 $ 22 $ 9,717 $ 8,508 $ 44 $ 24 $ 8,528
======= ==== ==== ======= ======= ==== ==== =======
Held to maturity (at amortized cost):
U.S. Treasury and Federal agencies............ $ 877 $ 1 $ 1 $ 877 $ 859 $ 2 $ 2 $ 859
======= ==== ==== ======= ======= ==== ==== =======
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the six months ended June 30, 1997, there were less than $1 million of
gains and losses realized on sales of available-for-sale securities of $173
million. During the six months ended June 30, 1996, gains of $6 million and
losses of $3 million were realized on sales of available-for-sale securities of
$192 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:
- -------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in millions) 1997 1996 1997 1996
- -------------------------------------------------------------------------------
Balance at beginning of period....... $ 70 $ 66 $ 73 $ 63
Provision for loan losses............ 3 2 6 4
Loan charge-offs..................... - (3) (6) (3)
Recoveries........................... 1 5 1 6
---- ---- ---- ----
Balance at end of period....... $ 74 $ 70 $ 74 $ 70
==== ==== ==== ====
- -------------------------------------------------------------------------------
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 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 June 30, 1997, a total of $500
million of capital securities is included in long-term debt.
Note E - Stockholders' Equity
The authorized number of common shares increased from 112 million at December
31, 1996 to 250 million at June 30, 1997. On May 28, 1997, State Street
distributed a two-for-one stock split in the form of a 100% stock dividend to
shareholders of record on April 30, 1997. The par value of these additional
shares was capitalized by a transfer from retained earnings to common stock.
Earnings per share data have been restated for the stock split.
Note F - Regulatory Matters
The regulatory capital amounts and ratios were the following at June 30, 1997
and December 31, 1996:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Regulatory Guidelines
------------------------------ State Street State Street Bank
Well --------------------------- --------------------------
(Dollars in millions) Minimum Capitalized 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Risk-based ratios:
Tier 1 capital................... 4% 6% 13.0% 13.4% 11.0% 12.1%
Total capital.................... 8 10 13.1 13.6 11.3 11.9
Leverage ratio....................... 3 5 6.2 5.9 5.3 5.3
Tier 1 capital....................... $ 2,098 $ 1,818 $ 1,772 $ 1,632
Total capital........................ 2,117 1,847 1,817 1,611
Risk-based assets:
On-balance sheet................. $ 12,799 $ 10,311 $ 12,654 $ 10,234
Off-balance sheet................ 3,387 3,249 3,387 3,249
-------- -------- -------- --------
Total risk-based assets...... $ 16,186 $ 13,560 $ 16,041 $ 13,483
======== ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The regulatory designation of "well capitalized" under the 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 proposals, "well capitalized"
requires only a minimum tier 1 risk-based capital ratio of 6% and a minimum
total risk-based capital ratio of 10%.
Note G - Net Interest Revenue
Net interest revenue consisted of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in millions) 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST REVENUE
Deposits with banks .................................................................... $ 94 $ 84 $184 $172
Investment securities:
U.S Treasury and Federal agencies .................................................. 92 63 178 111
State and political subdivisions (exempt from Federal tax) .......................... 20 18 38 32
Other investments ................................................................... 41 31 77 58
Loans .................................................................................. 82 68 158 133
Securities purchased under resale agreements, securities borrowed
and Federal funds sold .............................................................. 94 74 183 174
Trading account assets ................................................................. 2 4 5 8
---- ---- ---- ----
Total interest revenue ........................................................... 425 342 823 688
---- ---- ---- ----
INTEREST EXPENSE
Deposits ............................................................................... 119 104 228 215
Other borrowings ....................................................................... 137 102 266 203
Long-term debt ......................................................................... 15 2 25 5
---- ---- ---- ----
Total interest expense ........................................................... 271 208 519 423
---- ---- ---- ----
Net interest revenue ............................................................. $154 $134 $304 $265
==== ==== ==== ====
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note H - Operating Expenses - Other
The other category of operating expenses consisted of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in millions) 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Professional services .................................................................. $ 21 $ 15 $ 37 $ 27
Advertising and sales promotion ........................................................ 13 9 24 18
Postage, forms and supplies ............................................................ 7 6 13 13
Telecommunications ..................................................................... 7 6 13 12
Other .................................................................................. 23 18 45 37
---- ---- ---- ----
Total operating expenses - other ................................................. $ 71 $ 54 $132 $107
==== ==== ==== ====
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note I - Income Taxes
The provision for income taxes included in the Consolidated Statement of Income
is comprised of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in millions) 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current ................................................................................ $ 12 $ 11 $ 24 $ 22
Deferred ............................................................................... 32 28 64 55
==== ==== ==== ====
Total provision .................................................................. $ 44 $ 39 $ 88 $ 77
==== ==== ==== ====
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Taxes were $44 million and $88 million for the three months and six months ended
June 30, 1997, respectively, up from $39 million and $77 million, respectively,
a year ago. The effective tax rates for the three months and six months ended
June 30, 1997, were 32.5% and 33.0%, respectively, down from 35.3% in the three
months and six months ended June 30, 1996.
Note J - Commitments and Contingent Liabilities
State Street provides banking, trust, investment management, global custody,
accounting, administration and securities processing services to both U.S. and
non-U.S 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 June 30,
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 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.
The following table summarizes the contractual or notional amounts of
significant derivative financial instruments held or issued by State Street as
of:
- ------------------------------------------------------------------------------
JUNE 30, December 31,
(Dollars in millions) 1997 1996
- ------------------------------------------------------------------------------
Trading:
Interest rate contracts:
Swap agreements...................... $ 1,070 $ 880
Options and caps purchased........... 45 25
Options and caps written............. 142 116
Futures - short position............. 1,225 1,252
Options on futures purchased......... 20 430
Options on futures written........... 14 28
Foreign exchange contracts:
Forward, swap and spot............... 96,059 62,109
Options purchased.................... 183 206
Options written...................... 6 60
Options on futures purchased......... 287 330
Balance Sheet Management :
Interest rate contracts:
Swap agreements................. 470 296
Options and caps purchased...... 50 50
Foreign exchange contracts:
Forward, swap and spot.......... 85 65
- -----------------------------------------------------------------------------
The following table represents the fair value of financial instruments held or
issued for trading purposes as of:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
JUNE 30, 1997 December 31, 1996
----------------------- -------------------------
AVERAGE Average
FAIR FAIR Fair Fair
(Dollars in millions) VALUE VALUE Value Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign exchange contracts:
Contracts in a receivable position ................................. $791 $892 $620 $615
Contracts in a payable position .................................... 756 875 634 617
Other financial instrument contracts:
Contracts in a receivable position ................................. 7 7 6 6
Contracts in a payable position .................................... 4 4 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:
- ---------------------------------------------------------------------------
JUNE 30, December 31,
(Dollars in millions) 1997 1996
- ---------------------------------------------------------------------------
Indemnified securities on loan........... $ 57,464 $ 41,518
Loan commitments......................... 6,002 4,974
Standby letters of credit................ 1,660 1,777
Letters of credit........................ 255 160
- ---------------------------------------------------------------------------
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 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 $59.8 billion and
$42.8 billion for indemnified securities on loan at June 30, 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 June 30, 1997, and the related consolidated statements
of income for the three-month and six-month periods ended June 30, 1997 and
1996, and the statements of cash flows and changes in stockholders' equity for
the six-month periods ended June 30, 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 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
July 14, 1997
<PAGE>
- ------------------------------------------------------------------------------
PART I. ITEM 2
- ------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Summary
Earnings per share were $.56 on a fully diluted basis, an increase of 27% from
$.44 in the second quarter of 1996. Revenue grew 22%, from $466 million to $568
million. Net income was $92 million, up from $71 million a year ago. Return on
stockholders' equity was 20.7%.
Condensed Income Statement - Taxable Equivalent Basis
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
(Dollars in millions, except per share data) 1997 1996 Change % 1997 1996 Change %
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fee revenue:
Fiduciary compensation .............. $ 308 $ 256 $ 52 21 $ 594 $ 490 $ 104 21
Foreign exchange trading ............ 50 30 20 66 96 63 33 51
Servicing and processing ............ 39 29 10 38 79 57 22 39
Other ............................... 7 8 (1) (27) 9 20 (11) (52)
------ ------ ------ ------ ------ ------ ------ ------
Total fee revenue ................ 404 323 81 25 778 630 148 24
Net interest revenue ................... 167 145 22 15 327 284 43 15
Provision for loan losses .............. 3 2 1 50 6 4 2 50
------ ------ ------ ------ ------ ------ ------ ------
Total revenue .................... 568 466 102 22 1,099 910 189 21
Operating expenses ..................... 419 345 74 21 810 673 137 20
------ ------ ------ ------ ------ ------ ------ ------
Income before taxes .............. 149 121 28 24 289 237 52 22
Income taxes ........................... 44 39 5 14 88 77 11 14
Taxable equivalent adjustment .......... 13 11 2 23 23 19 4 23
------ ------ ------ ------ ------ ------ ------ ------
Net income ....................... $ 92 $ 71 $ 21 29 $ 178 $ 141 $ 37 26
====== ====== ====== ====== ====== ====== ====== ======
Earnings Per Share
Primary .......................... $ .57 $ .44 $ .13 30 $ 1.10 $ .86 $ .24 28
Fully diluted .................... .56 .44 .12 27 1.09 .86 .23 27
</TABLE>
(Percentage change based on dollars in thousands, except per share data)
- ------------------------------------------------------------------------------
Total Revenue
Total revenue for the quarter was $568 million, up $102 million, or 22%, from a
year ago, reflecting growth in all lines of business. Revenue benefited
particularly from the continuing growth of cross-border investing, which had the
effect of increasing fiduciary compensation, foreign exchange trading revenue
and net interest revenue. Non-U.S. assets under custody for U.S. customers
increased 32%. International assets managed for U.S. customers increased 38%.
The number of foreign exchange transactions executed for customers increased
40%. Non-U.S. deposits increased 9%.
Year-to-date, total revenue was $1.1 billion, up $189 million, or 21%, from
1996, due to growth in both fee revenue and net interest revenue.
Fee Revenue
Fee revenue, which comprised 71% of total revenue, was $404 million, up 25% 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 $308 million, up $52 million, or
21%, from a year ago due to broad-based growth driven by expanded and new
customer relationships, against a backdrop of increasing cross-border
investments and favorable securities markets.
In financial asset services, total assets under custody increased 32% to $3.5
trillion. Revenue from mutual funds reflected asset growth, particularly in
non-U.S. assets; new business; and growth in revenue from services for offshore
funds and fund administration. Total mutual fund assets under custody increased
24%, with the non-U.S. asset component up 35%. The number of offshore funds
State Street services was up 36% from a year ago and offshore fund assets were
up 66%. The number of funds for which State Street provided administration was
up 17%, and the assets under administration have more than doubled.
Revenue from servicing U.S. pension plans increased due to new business and
growth in existing customer relationships, and included increased revenue from
securities lending and portfolio accounting. For the corporation as a whole,
securities lending revenue growth was driven primarily by a 33% increase in
securities on loan, and secondarily by improved interest rate spreads.
Securities lending has grown steadily and now accounts for about 5% of total
revenue.
Outside the United States, revenue growth was driven by new business. Changes in
the regulatory environment and industry practices are increasing the demand for
State Street's services. Assets under custody for non-U.S. customers increased
35% 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 - investment management for institutional investors, including
non-U.S. equity, fixed income, and U.S. equity strategies; recordkeeping and
investment services for defined contribution plans; and investment services for
high net worth individuals. Total assets managed increased 32% to $357 billion.
Slightly over 50% of this growth came from existing customers' additional
contributions and new customers, with slightly less than 50% from increased
market values.
Foreign exchange trading revenue was $50 million, up $20 million, or 66%, from a
year ago as State Street continued to attract additional customers for foreign
exchange services, both by establishing new relationships and by expanding
existing ones. Additionally, the current year's growth rate of 66% reflects
relatively weak revenue in 1996. Assets managed by many of these investors
increased, portfolio rebalancing resulted in more transactions, and greater
volatility in currency markets increased forward hedging activity and market
opportunities.
Growth of $10 million in servicing and processing fee revenue to $39 million
reflected, in part, the acquisition of Princeton Financial Systems in the fourth
quarter of 1996.
Other fee revenue this quarter included a number of non-recurring items. These
netted to revenue similar to that of a year ago. Last year's second quarter
included securities gains of $3 million. This year there were one time fees from
a real estate transaction and a gain on the sale of a non-strategic mortgage
servicing business. These were offset by currency translation losses on foreign
notes and a write-down of real estate previously acquired for expansion, which
will occur elsewhere.
For the six months ended June 30, 1997, fee revenue was $778 million, up $148
million, or 24%, over the same period in 1996. The growth was primarily
attributable to fiduciary compensation, which increased $104 million. Revenue
from foreign exchange trading increased $33 million, for the reasons noted
above, and revenue from servicing and processing increased $22 million, largely
due to the acquisition of Princeton Financial Systems.
Net Interest Revenue
Taxable equivalent net interest revenue for the second quarter was $167 million,
up $22 million, or 15%, from a year ago due primarily to a $4.3 billion, or 16%,
increase in average interest-earning assets. State Street uses its balance sheet
capacity primarily to support the needs of institutional investors. In the
second quarter these customers, in conjunction with their worldwide investment
activities, made increased use of securities sold under repurchase agreements
and deposits, which were invested in low-risk assets.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30,
1997 1996
-------------------------- -------------------------
AVERAGE Average
(Dollars in millions) BALANCE RATE Balance Rate
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest-earning assets................................ $ 30,331 5.79% $ 26,043 5.45%
Interest-bearing liabilities........................... 25,525 4.26 21,692 3.86
------ ------
Excess of rates earned over rates paid................. 1.53% 1.59%
====== ======
Net Interest Margin.................................... 2.21% 2.24%
====== ======
</TABLE>
For the six months ended June 30, 1997, taxable equivalent net interest revenue
was $327 million, up $43 million, or 15%, from the same period in 1996 due to a
$4.2 billion, or 16%, increase in average interest-earning assets. The growth in
average interest-earning assets was driven primarily by a $2.3 billion increase
in securities sold under repurchase agreements and a $1.0 billion increase in
non-U.S. deposits.
Operating Expenses
Operating expenses for the second quarter of $419 million were up $74 million,
or 21%, from the second quarter of 1996 supporting business expansion and
investments for future growth, and reflecting acquisitions. Salaries and
employee benefits were $235 million, up $46 million, or 24%, due to 9% more
staff and an increase in incentive compensation resulting from strong financial
performance and a higher stock price.
For the six-month period ended June 30, 1996, operating expenses were up $137
million, or 20%, due primarily to increased salaries and employee benefits
costs.
Credit Quality
At June 30, 1997, total loans were $5.5 billion, 15% of the balance sheet. In
the second quarter, the provision for loan losses charged against income was $3
million, up from $2 million a year ago. During the quarter, the allowance for
loan losses increased from $70 million to $74 million.
During the second quarter, non-performing loans increased from $6 million to $10
million. Net recoveries were $1 million, versus recoveries of $2 million in the
year earlier period.
Taxes
Taxes were $44 million, up from $39 million a year ago. The effective tax rate
was 32.5%, down from 35.3% in the second quarter of 1996 and 33.6% in the first
quarter of 1997. This improvement in the tax rate resulted from increased tax
credits, tax exempt revenue and the use of non-U.S. tax loss carry forwards,
some of which are non-recurring.
Lines of Business
Following is a summary of line of business operating results for the six months
ended June 30:
<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 ......................... $ 560 $ 462 $ 190 $ 145 $ 28 $ 23
Net interest revenue ................ 229 198 12 13 80 69
------ ------ ------ ------ ------ ------
Total revenue ................. 789 660 202 158 108 92
Operating expenses .................. 601 506 162 125 47 42
====== ====== ====== ====== ====== ======
Operating profit .............. $ 188 $ 154 $ 40 $ 33 $ 61 $ 50
====== ====== ====== ====== ====== ======
Pretax margin ....................... 23.8% 23.3% 19.8% 20.7% 56.8% 54.8%
Percentage contribution ............. 65% 65% 14% 14% 21% 21%
Average assets (billions) ........... $ 29.2 $ 25.1 $ .7 $ .5 $ 3.6 $ 3.1
</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 six months of 1997.
Revenue increased to $789 million, up 20% from $660 million in 1996. The $129
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 22%. 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 $601 million, 19% higher than a year ago, due to
business growth and investments for future growth, and reflecting acquisitions.
Operating profit was $188 million, an increase of $34 million, or 22%, from a
year ago and reflected strong revenue growth.
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 six months of 1997.
Revenue grew 27%, to $202 million, due to revenue growth across the product
line. Operating expenses increased 31% reflecting additional staff to support
business growth and acquisitions. Operating profit was $40 million, an increase
of $7 million, or 21%, from $33 million in 1996.
Commercial Lending
Commercial lending provides loans, credit facilities 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 six months
of 1997.
Revenue grew to $108 million, up 17% from $92 million in the six months ended
June 30, 1996, due primarily to a 22% increase in loans. Loans to New England
businesses and specialty industries nationwide, leveraged leases, and
international trade finance all grew.
Operating expenses increased 12%, supporting business growth. Operating profit
was $61 million, an increase of $11 million, or 22%, from 1996, due to revenue
growth and an improvement in the pre-tax margin.
Accounting Changes
Information related to accounting changes appears in Note A to the Consolidated
Financial Statements.
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.
State Street 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 Federal Reserve Board's "well capitalized" category under
the Prompt Corrective Action Regulations. State Street's capital management
emphasizes risk exposure rather than simple asset levels; at 13.0%, State
Street's Tier 1 risk-based capital ratio significantly exceeds the regulatory
minimum of 4% and is among the highest for U.S. bankholding companies. State
Street's total risk-based ratio of 13.1% also significantly exceeds the
regulatory minimum, and is 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 June 30, 1997, State Street's liquid
assets were 77% of total assets.
Foreign Exchange And Derivative Financial Instruments
State Street uses 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 June 30, 1997, the notional amount of these instruments was $99.1 billion,
of which $96.5 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 June 30,
1997, the notional amount of these derivatives was $605 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.
Stockholders' Equity
The authorized number of common shares increased from 112 million at December
31, 1996 to 250 million at June 30, 1997. On May 28, 1997, State Street
distributed a two-for-one stock split in the form of a 100% stock dividend to
shareholders of record on April 30, 1997. The par value of these additional
shares was capitalized by a transfer from retained earnings to common stock.
Earnings per share data has been restated for the stock split.
State Street purchased the equivalent of 200,000 post-split shares of its stock
during the second quarter of 1997. Under the Board of Director's current
authorization, 3.4 million post-split shares remain to be purchased.
Financial Goals and Factors That 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 State Street's 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 market rates along with a steeper yield
curve, which have a favorable impact by increasing asset yield as well as
increasing the return on State Street's large volume of non-interest bearing
sources of funds. However, because State Street is liability sensitive in
the short-term (interest-bearing liabilities reprice faster than
interest-earning assets) a rising rate environment will reduce net interest
revenue from what 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 second quarter was another record-breaking quarter. State Street's financial
results extended the strong growth of the previous two quarters, continuing
performance above the company's long-term trends. The amount of new business
signed was up substantially from a year ago. This new business, from both
existing and new customers, will be installed over the next several quarters.
Management recognizes that the global economic environment is favorable for
financial assets and, by extension, for State Street. Management has positioned
State Street to benefit from the increase in cross-border investing, the rising
demand for currency risk management products, and the increased prices and
activity in securities markets. The 27% earnings per share growth rate of the
first six months is substantially above State Street's average of 15% per year
for the last ten years. However, State Street expects the earnings per share
results for the second half of 1997 to be equal to or better than the results
for the first half. Actual results may differ materially from this forward
looking information, which information is subject to the factors referred to
above and a continuation of the favorable global economic environment.
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 16, 1997. At the
Meeting the following nominees for Director were elected and the following
proposals were approved:
1. Election of Six Directors:
Number of Shares
--------------------------------------
For Withheld
----------------- -----------------
I. MacAllister Booth 68,364,712 388,351
James I. Cash, Jr. 68,366,960 386,103
Truman S. Casner 67,901,818 851,245
Arthur L. Goldstein 68,339,877 413,186
David B. Perini 68,348,368 404,695
Dennis J. Picard 68,367,356 385,707
Delivered not Voted 320
The following directors continue in office: Tenley E. Albright, M.D., Joseph A.
Baute, Marshall N. Carter, Nader F. Darehshori, Charles F. Kaye, John M.
Kucharski, Charles R. LaMantia, Alfred Poe, Bernard W. Reznicek, David A. Spina,
and Robert E. Weissman.
2. That Article 1 of the Restated Articles of Organization be amended to change
the name of the Corporation from State Street Boston Corporation to State
Street Corporation.
Number of Shares
For 67,456,755
Against 376,734
Abstain 919,574
Delivered not Voted 320
3. That Article 3 of the Restated Articles of Organization be amended to
increase the authorized number of shares of the Corporation's Common Stock,
$1 par value, from 112 million to 250 million and to authorize the issuance
from time to time of authorized and unissued shares of the Corporation by
the Board of Directors.
Number of Shares
For 66,278,074
Against 1,369,069
Abstain 1,105,919
Delivered not Voted 320
4. That the Senior Executive Annual Incentive Plan of the Corporation be
approved.
Number of Shares
For 65,187,206
Against 2,073,859
Abstain 1,491,994
Delivered not Voted 323
5. That the 1997 Equity Incentive Plan of the Corporation be approved.
Number of Shares
For 58,436,195
Against 8,689,792
Abstain 1,627,072
Delivered not Voted 323
ITEM 5. OTHER INFORMATION
The authorized number of common shares increased from 112 million at December
31, 1997 to 250 million at June 30, 1997. On May 28, 1997, State Street
distributed a two-for-one stock split in the form of a 100% stock dividend to
shareholders of record on April 30, 1997. The par value of these additional
shares was capitalized by a transfer from retained earnings to common stock.
On June 19, 1997, the registrant's Board of Directors voted to increase the
amount of Common Stock shares to be repurchased, to adjust for the two-for-one
stock split distributed in the form of a stock dividend on May 28, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
Exhibit Page of
Number this Report
------- -----------
3.1 Restated Articles of Organization as amended (filed
with the Securities and Exchange Commission as
Exhibit 3.1 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1995 and
incorporated
by reference).
3.4 Amendments to Articles 1 and 3 of the Restated Articles
of Organization 24-26
10.22 1997 Equity Incentive Plan of the Corporation 27-39
11 Statement re: computation of per share earnings 40
12 Ratio of Earnings to Fixed Charges 41
15 Letter re: unaudited interim financial information 42
27 Financial data schedule 43
(b) Reports on Form 8-K
A current report on Form 8-K dated March 11, 1997 was filed by the Registrant on
April 17, 1997 with the Securities and Exchange Commission which reported that
on March 11, 1997, the Registrant completed the sale of $300 million of 8.035%
Capital Securities, Series A (the "Capital Securities") issued by State Street
Institutional Capital B (the "Trust"), a newly created subsidiary business trust
of the Registrant. The Capital Securities are guaranteed by the Registrant. In
connection with the sale of the Capital Securities, the Registrant issued and
sold to the Trust $309 million of its 8.035% Junior Subordinated Deferrable
Interest Debentures, Series B (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: August 12, 1997 By: /s/ Ronald L. O'Kelley
---------------------------------------------------
Ronald L. O'Kelley
Executive Vice President and Chief Financial Officer
Date: August 12, 1997 By: /s/ Rex S. Schuette
---------------------------------------------------
Rex S. Schuette
Senior Vice President and Comptroller
<PAGE>
Exhibit 3.4
The Commonwealth of Massachusetts
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
We, David A. Spina, President and John R. Towers, Clerk of State Street Boston
Corporation located at 225 Franklin Street, Boston, MA 02110 certify that these
Articles of Amendment affecting articles numbered: Articles 1 and 3 of the
Articles of Organization, were duly adopted at a meeting held on April 16, 1997,
by vote of: 67,456,754 shares of Common Stock of 80,515,785 shares outstanding
on Vote 11, 66,278,074 shares of Common Stock of 80,515,785 shares outstanding
on Vote 21 being at least a majority of each type, class or series outstanding
and entitled to vote thereon.
See Continuation Sheet.
1 For amendments adopted pursuant to Chapter 156B, section 70.
<PAGE>
CONTINUATION SHEET
(Vote 1) VOTED: That Article 1 of the Restated Articles or Organization be
------ amended to change the name of the Corporation from State
Street Boston Corporation to State Street Corporation.
(Vote 2) VOTED: That Article 3 of the Restated Articles of Organization be
------ amended to increase the number of authorized shares of
Common Stock, $1 par value, from 112,000,000 to 250,000,000,
and to authorize the issuance from time to time of the
authorized and unissued shares of the Corporation by the
Board of Directors.
To change the number of shares and par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- ---------------------------------------------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------- ----------------------------------- ------------- ------------------------------ --------------------
<S> <C> <C> <C> <C>
Common: -0- Common: 112,000,000 $1
- --------------- ----------------------------------- ------------- ------------------------------ --------------------
Preferred: 3,500,000 Preferred: -0-
- --------------- ----------------------------------- ------------- ------------------------------ --------------------
Change the total authorized to:
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- ---------------------------------------------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------- ----------------------------------- ------------- ------------------------------ --------------------
<S> <C> <C> <C> <C>
Common: -0- Common: 250,000,000 $1
- --------------- ----------------------------------- ------------- ------------------------------ --------------------
Preferred: 3,500,000 Preferred: -0-
- --------------- ----------------------------------- ------------- ------------------------------ --------------------
</TABLE>
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment/after effective date not more than thirty days after such filing, in
which event the amendment will become effective on such later date.
Later effective date:
SIGNED UNDER THE PENALTIES OF PERJURY, this 16th day of April, 1997,
/s/ David A. Spina, President
/s/ John R. Towers, Clerk
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(GENERAL LAWS, CHAPTER 156B, SECTION 72)
- -------------------------------------------------------------------------------
I hereby approve the within Articles of Amendment and the filing fee in the
amount of $138,100 having been paid, said articles are deemed to have been filed
with me this 16th day of April 1997.
Effective date: April 16, 1997
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
John R. Towers, Clerk
State Street Corporation
225 Franklin Street
Boston, MA 02110
<PAGE>
EXHIBIT 10.22
STATE STREET CORPORATION
1997 EQUITY INCENTIVE PLAN
PURPOSE
The purpose of this Equity Incentive Plan (the "Plan") is to advance the
interests of State Street Corporation (the "Company") and its subsidiaries by
enhancing their ability to attract and retain employees and other persons or
entities who are in a position to make significant contributions to the success
of the Company and its subsidiaries through ownership of shares of the Company's
common stock ("Stock").
The Plan is intended to accomplish these goals by enabling the Company to
grant Awards in the form of Options, Stock Appreciation Rights, Restricted Stock
or Unrestricted Stock Awards, Deferred Stock Awards, Performance Awards, or
Supplemental Grants, or combinations thereof, all as more fully described below.
2. ADMINISTRATION
Unless otherwise determined by the Board of Directors of the Company (the
"Board"), the Plan will be administered by a Committee of the Board designated
for such purpose (the "Committee"). The Committee shall consist of at least two
directors. A majority of the members of the Committee shall constitute a quorum,
and all determinations of the Committee shall be made by a majority of its
members. Any determination of the Committee under the Plan may be made without
notice or meeting of the Committee by a writing signed by a majority of the
Committee members. During such times as the Stock is registered under the
Securities Exchange Act of 1934 (the "1934 Act"), except as the Board may
otherwise determine, all members of the Committee shall be "non-employee
directors" within the meaning of Rule 16b-3 promulgated under the 1934 Act and
"outside directors" within the meaning of Section 162(m)(4)(C)(i) of the
Internal Revenue Code of 1986, as amended (the "Code").
The Committee will have authority, not inconsistent with the express
provisions of the Plan and in addition to other authority granted under the
Plan, to (a) grant Awards at such time or times as it may choose; (b) determine
the size of each Award, including the number of shares of Stock subject to the
Award;(c) determine the type or types of each Award; (d) determine the terms and
conditions of each Award; (e) waive compliance by a holder of an Award with any
obligations to be performed by such holder under an Award and waive any terms or
conditions of an Award; (f) amend or cancel an existing Award in whole or in
part (and if an Award is canceled, grant another Award in its place on such
terms and conditions as the Committee shall specify), except that the Committee
may not, without the consent of the holder of an Award, take any action under
this clause with respect to such Award if such action would adversely affect the
rights of such holder; (g) prescribe the form or forms of instruments that are
required or deemed appropriate under the Plan, including any written notices and
elections required of Participants (as defined below), and change such forms
from time to time; (h) adopt, amend and rescind rules and regulations for the
administration of the Plan; and (i) interpret the Plan and decide any questions
and settle all controversies and disputes that may arise in connection with the
Plan. Such determinations and actions of the Committee, and all other
determinations and actions of the Committee made or taken under authority
granted by any provision of the Plan, will be conclusive and will bind all
parties. Nothing in this paragraph shall be construed as limiting the power of
the Committee to make adjustments under Section 7.3 or Section 8.6.
3. EFFECTIVE DATE AND TERM OF PLAN*
The Plan will become effective on the date on which it is approved by the
stockholders of the Company. Awards may be made prior to such stockholder
approval if made subject thereto. No Award may be granted under the Plan after
December 18, 2006, but Awards previously granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 8.6 below, the aggregate
number of shares of Stock that may be delivered under the Plan will be
8,000,000. If any Award requiring exercise by the Participant for delivery of
Stock terminates without having been exercised in full, or if any Award payable
in Stock or cash is satisfied in cash rather than Stock, the number of shares of
Stock as to which such Award was not exercised or for which cash was substituted
will be available for future grants.
Subject to Section 8.6(a), the maximum number of shares of Stock as to
which Options or Stock Appreciation Rights may be granted to any Participant in
any one calendar year is 800,000, which limitation shall be construed and
applied consistently with the rules under Section 162(m) of the Internal Revenue
Code. The maximum number of shares of Restricted Stock that may be delivered
under the Plan shall not exceed 40% of the total number of shares authorized for
issuance.
Stock delivered under the Plan may be either authorized but unissued Stock
or previously issued Stock acquired by the Company and held in treasury. No
fractional shares of Stock will be delivered under the Plan.
5. ELIGIBILITY AND PARTICIPATION
Each key employee of the Company or any of its subsidiaries (an "Employee")
and each other person or entity (including without limitation non-Employee
directors of the Company or a subsidiary of the Company) who, in the opinion of
the Committee, is in a position to make a significant contribution to the
success of the Company or its subsidiaries will be eligible to receive Awards
under the Plan (each such Employee, person or entity receiving an Award, "a
Participant"). A "subsidiary" for purposes of the Plan will be a corporation in
which the Company owns, directly or indirectly, stock possessing 50% or more of
the total combined voting power of all classes of stock.
6. TYPES OF AWARDS
6.1. OPTIONS
(a) Nature of Options. An Option is an Award giving the recipient the right
on exercise thereof to purchase Stock.
Both "incentive stock options," as defined in Section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code") (any Option intended to
qualify as an incentive stock option being hereinafter referred to as an "ISO"),
and Options that are not ISOs, may be granted under the Plan. ISOs shall be
awarded only to Employees. An Option awarded under the Plan shall be a non-ISO
unless it is expressly designated as an ISO at time of grant.
* Common Stock shares have been adjusted for the 2 for 1 stock split effective
April 30, 1997.
<PAGE>
(b) Exercise Price. The exercise price of an Option will be determined by the
Committee subject to the following:
(1) The exercise price of an Option shall not be less than 100% of the
fair market value of the Stock subject to the Option, determined as of the
time the Option is granted. In no event shall the exercise price of an
option, once granted, be lowered through a repricing of the option. For
purposes of the preceding sentence, "repricing" shall include an amendment
to the exercise price of an existing option or the cancellation of an
option followed by a regrant at a lower exercise price, but shall not
include an assumption or replacement described in Section 7.3(b) or an
adjustment to the exercise price of an option described in the first
sentence of Section 8.6(b).
(2) In no case may the exercise price paid for Stock which is part of
an original issue of authorized Stock be less than the par value per share
of the Stock.
(c) Duration of Options. The latest date on which an Option may be
exercised will be the tenth anniversary of the day immediately preceding the
date the Option was granted, or such earlier date as may have been specified by
the Committee at the time the Option was granted.
(d) Exercise of Options. An Option will become exercisable at such time or
times, and on such conditions, as the Committee may specify. The Committee may
at any time and from time to time accelerate the time at which all or any part
of the Option may be exercised. Any exercise of an Option must be in writing,
signed by the proper person and delivered or mailed to the Company, accompanied
by (1) any documents required by the Committee and (2) payment in full in
accordance with paragraph (e) below for the number of shares for which the
Option is exercised.
(e) Payment for Stock. Stock purchased on exercise of an Option must be
paid for as follows: (1) in cash or by check (acceptable to the Company in
accordance with guidelines established for this purpose), bank draft or money
order payable to the order of the Company or (2) if so permitted by the
Committee at or after the grant of the Option or by the instrument evidencing
the Option, (i) through the delivery (including by attestation of ownership) of
shares of Stock which have been outstanding for at least six months (unless the
Committee approves a shorter period) and which have a fair market value equal to
the exercise price, (ii) by delivery of an unconditional and irrevocable
undertaking by a broker to deliver promptly to the Company sufficient funds to
pay the exercise price, or (iii) by any combination of the foregoing permissible
forms of payment.
(f) Discretionary Payments. If (i) the market price of shares of Stock
subject to an Option (other than an Option which is in tandem with a Stock
Appreciation Right as described in Section 6.2 below) exceeds the exercise price
of the Option at the time of its exercise, and (ii) the person exercising the
Option so requests the Committee in writing, the Committee may in its sole
discretion cancel the Option and cause the Company to pay in cash or in shares
of Common Stock (at a price per share equal to the fair market value per share)
to the person exercising the Option an amount equal to the difference between
the fair market value of the Stock which would have been purchased pursuant to
the exercise (determined on the date the Option is canceled) and the aggregate
exercise price which would have been paid.
6.2. STOCK APPRECIATION RIGHTS.
(a) Nature of Stock Appreciation Rights. A Stock Appreciation Right or SAR
is an Award entitling the holder on exercise to receive an amount in cash or
Stock or a combination thereof (such form to be determined by the Committee)
determined in whole or in part by reference to appreciation, from and after the
date of grant, in the fair market value of a share of Stock. SARs may be based
solely on appreciation in the fair market value of Stock or on a comparison of
such appreciation with some other measure of market growth such as (but not
limited to) appreciation in a recognized market index. The date as of which such
appreciation or other measure is determined shall be the exercise date unless
another date is specified by the Committee.
(b) Grant of Stock Appreciation Rights. Stock Appreciation Rights may be
granted in tandem with, or independently of, Options granted under the Plan.
(1) Rules Applicable to Tandem Awards. When Stock Appreciation Rights
are granted in tandem with Options, (a) the Stock Appreciation Right will
be exercisable only at such time or times, and to the extent, that the
related Option is exercisable and will be exercisable in accordance with
the procedure required for exercise of the related Option; (b) the Stock
Appreciation Right will terminate and no longer be exercisable upon the
termination or exercise of the related Option, except that a Stock
Appreciation Right granted with respect to less than the full number of
shares covered by an Option will not be reduced until the number of shares
as to which the related Option has been exercised or has terminated exceeds
the number of shares not covered by the Stock Appreciation Right; (c) the
Option will terminate and no longer be exercisable upon the exercise of the
related Stock Appreciation Right; and (d) the Stock Appreciation Right will
be transferable only with the related Option.
(2) Exercise of Independent Stock Appreciation Rights. A Stock
Appreciation Right not granted in tandem with an Option will become
exercisable at such time or times, and on such conditions, as the Committee
may specify. The Committee may at any time accelerate the time at which all
or any part of the Right may be exercised.
Any exercise of a Stock Appreciation Right must be in writing, signed by
the proper person and delivered or mailed to the Company, accompanied by any
other documents required by the Committee.
6.3. RESTRICTED AND UNRESTRICTED STOCK.
(a) Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant shares of
Restricted Stock in such amounts and upon such terms and conditions as the
Committee shall determine subject to the restrictions described below.
(b) Restricted Stock Agreement. The Committee may require, as a condition
to an Award, that a recipient of a Restricted Stock Award enter into a
Restricted Stock Award Agreement, setting forth the terms and conditions of the
Award. In lieu of a Restricted Stock Award Agreement, the Committee may provide
the terms and conditions of an Award in a notice to the Participant of the
Award, on the Stock certificate representing the Restricted Stock, in the
resolution approving the Award, or in such other manner as it deems appropriate.
(c) Transferability and Other Restrictions. Except as otherwise provided in
this Section 6.3, the shares of Restricted Stock granted herein may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated until the
end of the applicable period or periods established by the Committee and the
satisfaction of any other conditions or restrictions established by the
Committee (such period during which a share of Restricted Stock is subject to
such restrictions and conditions is referred to as the "Restricted Period").
Except as the Committee may otherwise determine under Section 7.1 or
Section 7.2 below, if a Participant retires or suffers a Status Change (as
defined at Section 7.2(a) below) for any reason during the Restricted Period,
the Company may purchase the shares of Restricted Stock subject to such
restrictions and conditions for the amount of cash paid by the Participant for
such shares; provided, that if no cash was paid by the Participant such shares
of Restricted Stock shall be automatically forfeited to the Company without
consideration.
During the Restricted Period with respect to any shares of Restricted
Stock, the Company shall have the right to retain in the Company's possession
the certificate or certificates representing such shares.
(d) Removal of Restrictions. Except as otherwise provided in this Section
6.3, a share of Restricted Stock covered by a Restricted Stock grant shall
become freely transferable by the Participant upon completion of the Restricted
Period, including the passage of any applicable period of time and satisfaction
of any conditions to vesting. The Committee, in its sole discretion, shall have
the right at any time to waive all or any part of the restrictions and
conditions with regard to all or any part of the shares held by any Participant.
(e) Voting Rights, Dividends and Other Distributions. During the Restricted
Period, Participants holding shares of Restricted Stock granted hereunder may
exercise full voting rights and shall receive all regular cash dividends paid
with respect to such shares. Except as the Committee shall otherwise determine,
any other cash dividends and other distributions paid to Participants with
respect to shares of Restricted Stock including any dividends and distributions
paid in shares shall be subject to the same restrictions and conditions as the
shares of Restricted Stock with respect to which they were paid.
(f) Unrestricted Stock. The Committee may, in its sole discretion, sell to
any Participant shares of Stock free of restrictions under the Plan for a price
which is not less than the par value of the Stock.
(g) Notice of Section 83(b) Election. Any Participant making an election
under Section 83(b) of the Code with respect to Restricted Stock must provide a
copy thereof to the Company within 10 days of filing such election with the
Internal Revenue Service.
(h) Shares delivered under Senior Executive Annual Incentive Plan. In the
case of an award under the Company's Senior Executive Annual Incentive Plan
which is payable in shares of Stock, the holder of such award shall be deemed a
Participant hereunder and any such Shares shall be treated as having been sold
to the Participant as Unrestricted Stock or Restricted Stock hereunder (or as
Deferred Stock under Section 6.4, if delivery is deferred) for a price equal to
the cash payment under the award in lieu of which the Stock is being delivered
under the Award.
6.4. DEFERRED STOCK.
A Deferred Stock Award entitles the recipient to receive shares of Stock to
be delivered in the future. Delivery of the Stock will take place at such time
or times, and on such conditions, as the Committee may specify. The Committee
may at any time accelerate the time at which delivery of all or any part of the
Stock will take place. At the time any Award described in this Section 6 is
granted, the Committee may provide that, at the time Stock would otherwise be
delivered pursuant to the Award, the Participant will instead receive an
instrument evidencing the Participant's right to future delivery of Deferred
Stock.
6.5. PERFORMANCE AWARDS; PERFORMANCE GOALS.
(a) Nature of Performance Awards. A Performance Award entitles the
recipient to receive, without payment, an amount in cash or Stock or a
combination thereof (such form to be determined by the Committee) subject to the
attainment of performance goals. Performance goals may be related to personal
performance, corporate performance, departmental performance or any other
category of performance established by the Committee. The Committee will
determine the performance goals, the period or periods during which performance
is to be measured and all other terms and conditions applicable to the Award.
(b) Other Awards Subject to Performance Condition. The Committee may, at
the time any Award described in this Section 6 is granted, impose the condition
(in addition to any conditions specified or authorized in this Section 6 or any
other provision of the Plan) that performance goals be met prior to the
Participant's realization of any vesting, payment or benefit under the Award.
Any such Award made subject to the achievement of performance goals (other than
an Option or SAR granted with an exercise price not less than fair market value)
shall be treated as a Performance Award for purposes of Section 6.5(c) below.
However, an Award under the Company's Senior Executive Annual Incentive Plan
shall not be considered a Performance Award for purposes of this Plan.
(c) Limitations and Special Rules. No more than an aggregate of 500,000
shares of Stock (or their equivalent fair market value in cash) may be delivered
to any Participant under Performance Awards made from and after the effective
date of the Plan and prior to December 19, 2006. In the case of any Performance
Award intended to qualify for the performance-based remuneration exception
described at Section 162(m)(4)(C) of the Code and the regulations thereunder (an
"exempt award"), the Committee shall in writing preestablish one or more
specific, objectively determinable performance goal or goals (based solely on
one or more qualified performance criteria) no later than ninety (90) days after
the commencement of the period of service to which the performance relates (the
"performance period") (or at such other time as is required to satisfy the
conditions of Section 162(m)(4)(C) of the Code and the regulations thereunder).
For purposes of the preceding sentence, a qualified performance criterion is any
of the following determined (to the extent relevant) on either a consolidated or
business-unit basis: (i) return on equity, (ii) earnings per share, (iii) the
Company's total shareholder return during the performance period compared to the
total shareholder return of a generally recognized market reference (e.g., the
S & P 500 or the S & P Financial Index); (iv) revenue growth; (v) operating
leverage; or (vi) market share. To the extent consistent with qualification of
an exempt award under Section 162(m)(4)(C) of the Code and the regulations
thereunder, the Committee may provide that performance goals be adjusted in
order to eliminate the effect of extraordinary items (as determined in
accordance with generally accepted accounting principles) or changes in the
Stock by reason of an event described in Section 8.6(a).
6.6. SUPPLEMENTAL GRANTS.
In connection with any Award, the Committee may at the time such Award is
made or at a later date, provide for and grant a cash award to the Participant
("Supplemental Grant") not to exceed an amount equal to (1) the amount of any
Federal, state and local income tax on ordinary income for which the Participant
may be liable with respect to the Award, determined by assuming taxation at the
highest marginal rate, plus (2) an additional amount on a grossed-up basis
intended to make the Participant whole on an after-tax basis after discharging
all the Participant's income tax liabilities arising from all payments under
this Section 6. Any payments under this subsection (b) will be made at the time
the Participant incurs or is expected to incur Federal income tax liability with
respect to the Award.
7. EVENTS AFFECTING OUTSTANDING AWARDS
7.1. DEATH, RETIREMENT OR DISABILITY.
If the employment of an Employee Participant terminates by reason of death,
retirement at or after the normal or early retirement age under any retirement
plan or supplemental retirement agreement maintained by the Company or any
subsidiary ("retirement"), or disability as determined (subject to such
additional rules as the Committee may prescribe) in accordance with the long
term disability plan of the Company and its subsidiaries covering the
Participant or, if there is no such plan, in accordance with a determination of
disability by the Social Security Administration ("disability"), the following
will apply except as the Committee may otherwise determine:
(a) All Options and Stock Appreciation Rights held by the Participant or a
transferee immediately prior to such termination of employment, whether or not
then exercisable, may be exercised by the Participant or such transferee (or if
the Option or SAR was held by the Participant at death, by the Participant's
executor or administrator or the person or persons to whom the Option or Right
is transferred by will or the applicable laws of descent and distribution), in
accordance with the terms of the Option or SAR or on such accelerated basis as
the Committee may determine, during the period that ends on the later of (1) one
year after death, or (ii) one year after the Option or SAR, or the last
installment of such Option or SAR if there is more than one, first becomes
exercisable. In no event, however, shall an Option or Stock Appreciation Right
remain exercisable beyond the latest date on which it could have been exercised
without regard to this Section 7.
(b) In the case of termination of employment occurring by reason of death
or disability, all Restricted Stock held by the Participant immediately prior to
such termination of employment shall be vested. In the case of termination of
employment occurring by reason of retirement, all Restricted Stock held by the
Participant immediately prior to retirement must be transferred to the Company
(and, in the event the certificates representing such Restricted Stock are held
by the Company, such Restricted Stock will be so transferred without any further
action by the Participant) in accordance with Section 6.3(c) above.
(c) Any payment or benefit under a Deferred Stock Award, Performance Award,
or Supplemental Grant to which the Participant was not irrevocably entitled
prior to termination of employment will be forfeited and the Award canceled as
of the time of such termination of employment.
7.2. OTHER TERMINATION OF SERVICE.
If a Participant who is an Employee ceases to be an Employee for any reason
other than death, retirement, or disability (as defined at Section 7.1 above),
or if there is a termination of the consulting, service or similar relationship
in respect of which a non-Employee Participant was granted an Award hereunder
(such termination of the employment or other relationship being hereinafter
referred to as a "Status Change"), the following will apply except as the
Committee may otherwise determine:
(a) All Options and Stock Appreciation Rights held by the Participant (or
if the Option or Right was previously transferred, by the transferee) that were
not exercisable immediately prior to the Status Change shall terminate at the
time of the Status Change. Any Options or Rights that were exercisable
immediately prior to the Status Change will continue to be exercisable for a
period of three months, and shall thereupon terminate; provided, that if the
Participant should die within such three-month period, the Option or Right shall
be exercisable (to the extent it was exercisable immediately prior to death) for
a period of one year following the Status Change. In no event, however, shall an
Option or Stock Appreciation Right remain exercisable beyond the latest date on
which it could have been exercised without regard to this Section 7.
(b) All Restricted Stock held by the Participant at the time of the Status
Change must be transferred to the Company (and, in the event the certificates
representing such Restricted Stock are held by the Company, such Restricted
Stock will be so transferred without any further action by the Participant) in
accordance with Section 6.3(c) above.
(c) Any payment or benefit under a Deferred Stock Award, Performance Award,
or Supplemental Grant to which the Participant was not irrevocably entitled
prior to the Status Change will be forfeited and the Award canceled as of the
date of such Status Change.
(d) For purposes of this Section 7.2, in the case of a Participant who is
an Employee, a Status Change shall not be deemed to have resulted by reason of
(i) a sick leave or other bona fide leave of absence approved for purposes of
the Plan by the Committee, so long as the Employee's right to reemployment is
guaranteed either by statute or by contract, or (ii) a transfer of employment
between the Company and a subsidiary or between subsidiaries, or to the
employment of a corporation (or a parent or subsidiary corporation of such
corporation) issuing or assuming an Option in a transaction to which Section
424(a) of the Code applies.
7.3 CERTAIN CORPORATE TRANSACTIONS.
Except as otherwise provided by the Committee at the time of grant, in the
event of a consolidation or merger in which the Company is not the surviving
corporation or which results in the acquisition of substantially all the
Company's outstanding Stock by a single person or entity or by a group of
persons and/or entities acting in concert, or in the event of the sale or
transfer of substantially all the Company's assets or a dissolution or
liquidation of the Company (a "covered transaction"), the following rules shall
apply:
(a) Subject to paragraph (b) below, all outstanding Awards requiring
exercise will cease to be exercisable, and all other Awards to the extent not
fully vested (including Awards subject to conditions not yet satisfied or
determined) will be forfeited except as required under Section 7.4 below, as of
the effective time of the covered transaction, provided that the Committee may
in its sole discretion (but subject to Section 7.4 below in the case of a
covered transaction that constitutes a Change of Control), on or prior to the
effective date of the covered transaction, (1) make any outstanding Option and
Stock Appreciation Right exercisable in full, (2) remove the restrictions from
any Restricted Stock, (3) cause the Company to make any payment and provide any
benefit under any Deferred Stock Award, Performance Award or Supplemental Grant,
and (4) remove any performance or other conditions or restrictions on any Award;
or
(b) With respect to an outstanding Award held by a Participant who,
following the covered transaction, will be employed by or otherwise providing
services to an entity which is a surviving or acquiring entity in the covered
transaction or an affiliate of such an entity, the Committee may at or prior to
the effective time of the covered transaction, in its sole discretion and in
lieu of the action described in paragraph (a) above, arrange to have such
surviving or acquiring entity or affiliate assume any Award held by such
Participant outstanding hereunder or grant a replacement award which, in the
judgment of the Committee, is substantially equivalent to any Award being
replaced.
7.4. CHANGE OF CONTROL PROVISIONS.
(a) Impact of Event. Notwithstanding any other provision of the Plan to the
contrary, in the event of a Change of Control:
(1) Acceleration of Options and SARs; Effect on Other Awards. All
Options and SARs outstanding as of the date such Change of Control is
determined to have occurred and which are not then exercisable shall (prior
to application of the provisions of Section 7.3 above, in the case of a
Change of Control that also constitutes a covered transaction) become
exercisable to the full extent of the original grant, all shares of
Restricted Stock which are not otherwise vested shall vest, and holders of
Performance Awards granted hereunder as to which the relevant performance
period has not ended as of the date such Change of Control is determined to
have occurred shall be entitled at the time of such Change of Control to
receive a cash payment per Performance Award equal to such amount, if any,
as shall be specified in the Award.
(2) Restriction on Application of Plan Provisions Applicable in the
Event of Termination of Employment. After a Change of Control (but subject
to Section 7.3 above), Options and SARs shall remain exercisable following
a termination of employment or other service relationship (other than
termination by reason of death, disability (as determined by the Company)
or retirement) for seven (7) months following such termination or until
expiration of the original terms of the Option or SAR, whichever period is
shorter.
(3) Restriction on Amendment. In connection with or following a Change
of Control, neither the Committee nor the Board may impose additional
conditions upon exercise or otherwise amend or restrict an Option, SAR,
share of Restricted Stock, Deferred Stock Award or Performance Award, or
amend the terms of the Plan in any manner adverse to the holder thereof,
without the written consent of such holder.
Notwithstanding the foregoing, if any right granted pursuant to this
Section 7.4 would make a Change of Control transaction ineligible for pooling of
interests accounting under applicable accounting principles that but for this
Section 7.4 would otherwise be eligible for such accounting treatment, the
Committee shall have the authority to substitute Stock for the cash which would
otherwise be payable pursuant to this Section 7.4 having a fair market value
equal to such cash.
(b) Definition of Change of Control. For purposes of the Plan, a "Change of
Control" shall mean the happening of any of the following events:
(1) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 25% or more of either (x) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common Stock") or
(y) the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); excluding, however, the following
acquisitions of Outstanding Company Common Stock and Outstanding Company
Voting Securities: (i) any acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (iv) any acquisition by any Person
pursuant to a transaction which complies with clauses (i), (ii) and (iii)
of subsection (3) of this Section 7.4; or
(2) Individuals who, as of the effective date of the Plan, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual who
becomes a member of the Board subsequent to such effective date, whose
election, or nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of directors then comprising the
Incumbent Board shall be considered as though such individual were a member
of the Incumbent Board; but, provided further, that any such individual
whose initial assumption of office occurs as a result of either an actual
or threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board shall not be so considered as a member of the
Incumbent Board; or
(3) Consummation by the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of
the assets of the Company ("Business Combination"); excluding, however,
such a Business Combination pursuant to which (i) all or substantially all
of the individuals and entities who are the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
own, directly or indirectly, more than 50% of, respectively, the
outstanding shares of common stock, and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (other than any employee benefit plan
(or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or such corporation resulting from
such Business Combination) will beneficially own, directly or indirectly,
25% or more of, respectively, the outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the outstanding voting securities of such corporation entitled to
vote generally in the election of directors except to the extent that such
ownership existed with respect to the Company prior to the Business
Combination and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(4) The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
8. GENERAL PROVISIONS
8.1. DOCUMENTATION OF AWARDS.
Awards will be evidenced by such written instruments, if any, as may be
prescribed by the Committee from time to time. Such instruments may be in the
form of agreements to be executed by both the Participant and the Company, or
certificates, letters or similar instruments, which need not be executed by the
Participant but acceptance of which will evidence agreement to the terms
thereof.
8.2. RIGHTS AS A STOCKHOLDER, DIVIDEND EQUIVALENTS.
Except as specifically provided by the Plan, the receipt of an Award will
not give a Participant rights as a stockholder; the Participant will obtain such
rights, subject to any limitations imposed by the Plan or the instrument
evidencing the Award, only upon the issuance of Stock. However, the Committee
may, on such conditions as it deems appropriate, provide that a Participant will
receive a benefit in lieu of cash dividends that would have been payable on any
or all Stock subject to the Participant's Award had such Stock been outstanding.
Without limitation, the Committee may provide for payment to the Participant of
amounts representing such dividends, either currently or in the future, or for
the investment of such amounts on behalf of the Participant.
8.3. CONDITIONS ON DELIVERY OF STOCK.
The Company will not be obligated to deliver any shares of Stock pursuant
to the Plan or to remove restriction from shares previously delivered under the
Plan (a) until all conditions of the Award have been satisfied or removed, (b)
until, in the opinion of the Company's counsel, all applicable Federal and state
laws and regulation have been complied with, (c) if the outstanding Stock is at
the time listed on any stock exchange or The Nasdaq National Market, until the
shares to be delivered have been listed or authorized to be listed on such
exchange or market upon official notice of notice of issuance, and (d) until all
other legal matters in connection with the issuance and delivery of such shares
have been approved by the Company's counsel. If the sale of Stock has not been
registered under the Securities Act of 1933, as amended, the Company may
require, as a condition to exercise of the Award, such representations or
agreements as counsel for the Company may consider appropriate to avoid
violation of such Act and may require that the certificates evidencing such
Stock bear an appropriate legend restricting transfer.
If an Award is exercised by the Participant's legal representative or
transferee, the Company will be under no obligation to deliver Stock pursuant to
such exercise until the Company is satisfied as to the authority of such
representative.
8.4. TAX WITHHOLDING.
The Company will withhold from any cash payment made pursuant to an Award
an amount sufficient to satisfy all federal, state and local withholding tax
requirements (the "withholding requirements").
In the case of an Award pursuant to which Stock may be delivered, the
Committee will have the right to require that the Participant or other
appropriate person remit to the Company an amount sufficient to satisfy the
withholding requirements, or make other arrangements satisfactory to the
Committee with regard to such requirements, prior to the delivery of any Stock.
If and to the extent that such withholding is required, the Committee may permit
the Participant or such other person to elect at such time and in such manner as
the Committee provides to have the Company hold back from the shares to be
delivered, or to deliver to the Company, Stock having a value calculated to
satisfy the withholding requirement. The Committee may make such share
withholding mandatory with respect to any Award at the time such Award is made
to a Participant.
If in connection with the exercise of an ISO the Committee determines that
the Company could be liable for withholding requirements with respect to the
exercise or with respect to a disposition of the Stock received upon exercise,
the Committee may require as a condition of exercise that the person exercising
the ISO agree (a) to provide for withholding under the preceding paragraph of
this Section 8.4, if the Committee determines that a withholding responsibility
may arise in connection with tax exercise, (b) to inform the Company promptly of
any disposition (within the meaning of Section 424(c) of the Code) of Stock
received upon exercise, and (c) to give such security as the Committee deems
adequate to meet the potential liability of the Company for the withholding
requirements and to augment such security from time to time in any amount
reasonably deemed necessary by the Committee to preserve the adequacy of such
security.
8.5. NONTRANSFERABILITY OF AWARDS.
Unless otherwise permitted by the Committee, no Award (other than an Award
in the form of an outright transfer of cash or Unrestricted Stock) may be
transferred other than by will or by the laws of descent and distribution, and
during a Participant's lifetime an Award requiring exercise may be exercised
only by the Participant (or in the event of the Participant's incapacity, the
person or persons legally appointed to act on the Participant's behalf). The
Committee may in its discretion permit transfers to other persons or entities.
8.6. ADJUSTMENTS IN THE EVENT OF CERTAIN TRANSACTIONS.
(a) In the event of a stock dividend, stock split or combination of shares,
recapitalization or other change in the Company's capitalization, or other
distribution to common stockholders other than normal cash dividends, after the
effective date of the Plan, the Committee will make any appropriate adjustments
to the maximum number of shares that may be delivered under the Plan under the
first paragraph of Section 4 above and to the limits described in the second
paragraph of Section 4 and in Section 6.5(c).
(b) In any event referred to in paragraph (a), the Committee will also make
any appropriate adjustments to the number and kind of shares of stock or
securities subject to Awards then outstanding or subsequently granted, any
exercise prices relating to Awards and any other provision of Awards affected by
such change. The Committee may also make such adjustments to take into account
material changes in law or in accounting practices or principles, mergers,
consolidations, acquisitions, dispositions or similar corporate transactions, or
any other event, if it is determined by the Committee that adjustments are
appropriate to avoid distortion in the operation of the Plan; provided, that
adjustments pursuant to this sentence shall not be made to the extent it would
cause any Award intended to be exempt under Section 162(m)(4)(C) to fail to be
so exempt.
(c) In the case of ISOs or Awards intended to satisfy the performance-based
remuneration exception under Section 162(m)(4)(C) of the Code, the adjustments
described in (a) and (b) will be made only to the extent consistent with
continued qualification of the option under Section 422 of the Code (in the case
of an ISO) or Section 162(m) of the Code.
8.7. EMPLOYMENT RIGHTS, ETC.
Neither the adoption of the Plan nor the grant of Awards will confer upon
any person any right to continued retention by the Company or any subsidiary as
an Employee or otherwise, or affect in any way the right of the Company or
subsidiary to terminate an employment, service or similar relationship at any
time. Except as specifically provided by the Committee in any particular case,
the loss of existing or potential profit in Awards granted under the Plan will
not constitute an element of damages in the event of termination of an
employment, service or similar relationship even if the termination is in
violation of an obligation of the Company to the Participant.
8.8. NONCOMPETITION RESTRICTIONS, ETC.
The Committee may provide in connection with any Award that the
Participant's rights to enjoyment of the Award or to any cash or Stock
deliverable under the Award be conditioned upon the Participant's agreeing not
to compete with the Company and its subsidiaries, not to disclose confidential
information, and not to solicit employees, advisors or business from the Company
and its subsidiaries, the terms of any such agreement or undertaking to be
determined by the Committee.
8.9. DEFERRAL OF PAYMENTS.
The Committee may agree at any time, upon request of the Participant and
subject to such rules as the Committee may determine, to defer the date on which
any future payment under an Award will be made.
8.10. PAST SERVICES AS CONSIDERATION.
Where a Participant purchases Stock under an Award for a price equal to the
par value of the Stock the Committee may determine that such price has been
satisfied by past services rendered by the Participant.
9. EFFECT, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of Awards to a Participant will
affect the Company's right to grant to such Participant awards that are not
subject to the Plan, to issue to such Participant Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock may be issued to
Employees.
The Committee may at any time or times amend the Plan or any outstanding
Award for any purpose which may at the time be permitted by law, or may at any
time terminate the Plan as to any further grants of Awards, provided that
(except to the extent expressly required or permitted by the Plan) no such
amendment will, without the approval of the stockholders of the Company,
effectuate a change for which stockholder approval is required in order for the
Plan to continue to qualify for the award of ISOs under Section 422 of the Code
or for the award of performance-based compensation under Section 162(m) of the
Code, nor shall any such amendment adversely affect the rights of a holder of an
Award without such holder's consent.
<PAGE>
EXHIBIT 11
STATE STREET CORPORATION
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except per share data; shares in thousands) 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 160,441 161,792 160,886 162,538
Common stock equivalents 1,850 1,326 1,807 1,285
-------- -------- -------- --------
Primary shares outstanding 162,291 163,118 162,693 163,823
======== ======== ======== ========
Net Income $ 92 $ 71 $ 178 $ 141
======== ======== ======== ========
Earnings per share - primary $ .57 $ .44 $ 1.10 $ .86
======== ======== ======== ========
FULLY DILUTED
Average shares outstanding 160,441 161,792 160,886 162,538
Common stock equivalents 1,915 1,346 1,854 1,385
Assumed conversion of 7 3/4%
convertible subordinated debentures 1,096 1,113 1,098 1,114
-------- -------- -------- --------
Fully diluted average shares outstanding 163,452 164,251 163,838 165,037
======== ======== ======== ========
Net income $ 92 $ 71 $ 178 $ 141
======== ======== ======== ========
Earnings per share - fully diluted $ .56 $ .44 $ 1.09 $ .86
======== ======== ======== ========
</TABLE>
<PAGE>
EXHIBIT 12
STATE STREET CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
June 30, -------------------------------------------------------
(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..................... $ 267 $ 453 $ 370 $ 343 $ 292 $ 271
Fixed charges.................................. 296 477 495 267 184 190
----- -------- -------- ----- ----- -----
Earnings as adjusted...................... $ 563 $ 930 $ 865 $ 610 $ 476 $ 461
===== ======== ======== ===== ===== =====
Income before income taxes
Pretax income from continuing
operations as reported....................... $ 266 $ 447 $ 366 $ 340 $ 291 $ 271
Share of pretax income (loss) of 50%
owned subsidiaries not included in above..... 1 6 4 3 1 -
----- -------- -------- ----- ----- -----
Net income as adjusted.................... $ 267 $ 453 $ 370 $ 343 $ 292 $ 271
===== ======== ======== ===== ===== =====
Fixed charges:
Interest on other borrowings................... $ 266 $ 452 $ 482 $ 254 $ 170 $ 173
Interest on long-term debt including
amortization of debt issue costs............. 25 15 9 9 10 13
Portion of rents representative of the
interest factor in long term lease........... 5 10 4 4 4 4
----- -------- -------- ----- ----- -----
Fixed charges.................................. $ 296 $ 477 $ 495 $ 267 $ 184 $ 190
===== ======== ======== ===== ===== =====
Ratio of earnings to fixed charges................... 1.90X 1.95x 1.75x 2.29x 2.59x 2.43x
(B) Including interest on deposits:
Adjusted earnings from (A) above............... $ 563 $ 930 865 $ 610 $ 476 $ 461
Add interest on deposits....................... 228 425 416 281 214 263
----- -------- -------- ----- ----- -----
Earnings as adjusted...................... $ 791 $ 1,355 $ 1,281 $ 891 $ 690 $ 724
===== ======== ======== ===== ===== =====
Fixed charges:
Fixed charges from (A) above................... $ 296 $ 477 495 $ 267 $ 184 $ 190
Interest on deposits........................... 228 425 416 281 214 263
----- -------- -------- ----- ----- -----
Adjusted fixed charges.................... $ 524 $ 902 $ 911 $ 548 $ 398 $ 453
===== ======== ======== ===== ===== =====
Adjusted earnings to adjusted fixed charges.......... 1.51X 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 Corporation, of our report dated
July 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 June 30, 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
August 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> 1,000,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 1,989
<INT-BEARING-DEPOSITS> 8,776
<FED-FUNDS-SOLD> 6,602
<TRADING-ASSETS> 126
<INVESTMENTS-HELD-FOR-SALE> 9,717
<INVESTMENTS-CARRYING> 877
<INVESTMENTS-MARKET> 877
<LOANS> 5,527
<ALLOWANCE> 74
<TOTAL-ASSETS> 36,686
<DEPOSITS> 24,858
<SHORT-TERM> 7,378
<LIABILITIES-OTHER> 1,843
<LONG-TERM> 775
0
167
<COMMON> 0
<OTHER-SE> 1,665
<TOTAL-LIABILITIES-AND-EQUITY> 36,686
<INTEREST-LOAN> 158
<INTEREST-INVEST> 293
<INTEREST-OTHER> 372
<INTEREST-TOTAL> 823
<INTEREST-DEPOSIT> 228
<INTEREST-EXPENSE> 519
<INTEREST-INCOME-NET> 304
<LOAN-LOSSES> 6
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 810
<INCOME-PRETAX> 266
<INCOME-PRE-EXTRAORDINARY> 266
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 178
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.09
<YIELD-ACTUAL> 5.79
<LOANS-NON> 10
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 73
<CHARGE-OFFS> 6
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 74
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
