Exhibit 99.1
State Street Corporation Announces Record Revenue in Second Quarter, up 21%
Compared to 2005; Continues to Achieve Positive Operating Leverage with Strength
across All Business Units
BOSTON--(BUSINESS WIRE)--July 18, 2006--State Street Corporation
announced today second-quarter earnings per share of $0.68 which
includes non-cash tax charges of $0.25 per share. These charges
include $0.18 per share, primarily related to the impact of the
recently passed Tax Increase Prevention and Reconciliation Act
("TIPRA"), as well as $0.07 per share, related to an increase in the
tax provision for the potential resolution of issues with the IRS
regarding the treatment of leveraged leases. Excluding these tax
charges, earnings per share of $0.93 are up 41% from $0.66 per share
in the second quarter of 2005. Record revenue of $1.7 billion in the
second quarter of 2006 is up 21%, or $290 million, compared to $1.4
billion in the year-ago quarter. Total expenses in the second quarter
of 2006 of $1.2 billion are up 14%, or $148 million, compared to $1.0
billion in the year-ago quarter. As a result, the Corporation
generated significant positive operating leverage. For the second
quarter of 2006, return on shareholders' equity including the tax
charges is 14.0% and excluding the tax charges is 19.2%. These compare
to 14.4% in the second quarter of 2005.
Ronald E. Logue, State Street's chairman and chief executive
officer, said, "Our strong results across all business units and
geographies demonstrate the successful execution of our global
strategy. We are particularly pleased with the performance of our
investment servicing activities, including the strength in securities
finance and foreign exchange. State Street Global Advisors continues
to win new business in quantitative active strategies, launch new
ETFs, increase its fee revenue, and make a larger contribution to our
bottom line. We continue to manage expenses in light of a dynamic
market environment. We are pleased that again this quarter we achieved
positive operating leverage. Net interest revenue and net interest
margin also improved compared to 2005, due to more active balance
sheet management."
Looking forward, Logue concluded, "The potential effect of higher
short-term interest rates in the U.S. in the second half of the year
poses a challenge for us. As in past years, we may experience seasonal
weakness in certain market-driven revenues in the third quarter.
However, excluding the second-quarter tax charges, the strength in the
first half of the year increases our confidence that we will achieve
at the high end of the ranges we established for the full year."
SECOND QUARTER RESULTS VS. YEAR-AGO QUARTER
Servicing fees are up 11%, to $683 million from $618 million in
last year's second quarter. The increase is attributable to new
business from existing and new customers in 2006 and higher equity
market valuations. Total assets under custody are $10.9 trillion, up
13%, compared with $9.6 trillion in the year-ago quarter. Daily
average values for the S&P 500 Index are up 8% from the second quarter
of 2005; daily average values for the MSCI(R) EAFE Index(SM) are up
25%. The average values for the NASDAQ are up about 11%.
Investment management fees, generated by State Street Global
Advisors, are $232 million, up 34% from $173 million a year ago.
Management fees reflect continued new business, an increase in average
month-end equity valuations, and increased performance fees. Total
assets under management are $1.5 trillion, up 12%, compared to $1.4
trillion the previous year.
Trading services revenue, which includes foreign exchange trading
revenue and brokerage and other fees, is $258 million for the quarter,
up 53% from $169 million a year ago. The increase was driven by
strength in foreign exchange.
Securities finance revenue is $128 million in the quarter, up 13%
compared to $113 million in the year-ago quarter, reflecting an
increase in demand, offset partially by a decline in spreads. Both
quarters' results represent seasonally high activity.
Processing fees and other revenue are up 6% at $74 million.
Net interest revenue on a fully taxable-equivalent basis is $275
million, an increase of $47 million from $228 million a year ago. The
increase in net interest revenue is due to a favorable mix of deposits
as well as growth in the balance sheet due to customer demand. Net
interest margin increased to 1.20% from 1.04% a year ago.
Expenses increased from $1,028 million to $1,176 million, up $148
million, or 14%. Salaries and benefits expenses are up 24% to $684
million, primarily attributable to incentive compensation due to
improved performance, additions to headcount, and increases in planned
benefits. Expenses for information systems & communications increased
$8 million, or 7%, to $129 million due to infrastructure investments.
The increase in expenses also includes higher transaction processing
services, up 20% to $134 million, due to higher volumes. Occupancy
expense decreased 17%, or $19 million, to $95 million primarily due to
the $26 million charge in 2005 for sub-leasing several floors at the
Corporation's headquarters building. Other expenses increased 4% to
$134 million from $129 million.
The effective tax rate for the quarter is 52.1% including the two
previously mentioned charges for the adjustments to federal income
taxes, compared with 34.0% in the second quarter of last year. The
effective tax rate in the third and fourth quarters of 2006 is
expected to be 34.6%.
State Street recorded a non-cash tax charge of $59 million, or
$0.18 per share, primarily related to recently passed legislation
repealing the exclusion from federal income taxation of a portion of
the income generated from certain leveraged leases of aircraft. The
Corporation also recorded an additional tax provision of $24 million,
or $0.07 per share, for the potential resolution of issues with the
IRS regarding the treatment of lease-in-lease-out ("LILO") and
sale-in-lease-out ("SILO") transactions.
On July 13, 2006, the FASB issued FASB Staff Position, or "FSP,"
No. FAS 13-2. The FSP requires that the recognition of lease income
over the term of a lease be recalculated if there is a change in the
expected timing of tax-related cash flows. The adoption of the FSP
will result in an after-tax reduction of the opening balance of
retained earnings, on January 1, 2007, in the range of $190 million to
$240 million. Future income from the affected leases is expected to
increase over the remaining terms of the leases by an amount
approximately equal to the after-tax reduction.
State Street purchased approximately 2.8 million shares of its
common stock during the second quarter at an average price of $64.74
per share. The remaining authorization to purchase shares is 12.2
million shares.
SECOND-QUARTER RESULTS VS. FIRST QUARTER
Second-quarter net income per share of $0.93, excluding the $0.25
per share for additional tax provisions, compares to net income per
share from continuing operations of $0.84 in the first quarter. Total
revenue in the second quarter of $1.7 billion is up 8% versus $1.5
billion in the first quarter. Total expenses are $1.2 billion, up 7%
versus $1.1 billion in the first quarter. For the second quarter of
2006, return on shareholders' equity including the tax charges is
14.0% and excluding the tax charges is 19.2%. These compare with 17.6%
from continuing operations in the first quarter.
Servicing fees are up 4% to $683 million and management fees are
up 5% to $232 million due principally to new business. Trading
services increased 12% to $258 million due to strength in foreign
exchange. Securities finance revenue increased 58%, from $81 million
to $128 million, due to seasonally high volumes and improved spreads.
Processing fees and other are up slightly from $72 million to $74
million. Net interest revenue on a fully taxable-equivalent basis
decreased $2 million, or 1%, to $275 million, compared to $277 million
in the first quarter.
Salaries and employee benefits total $684 million, an increase of
$49 million, or 8%, from $635 million, attributable to the impact of
incentive compensation due to improved performance and the impact of
merit increases. Transaction processing services increased $14
million, or 12%, due to an increase in volumes. Other expenses are up
$18 million, or 16%, from $116 million to $134 million primarily in
support of new business and growth initiatives.
ADDITIONAL INFORMATION
All per share amounts represent diluted earnings per share.
INVESTOR CONFERENCE CALL
State Street will webcast an investor conference call today,
Tuesday, July 18, 2006, at 9:30 a.m. EDT, available at
www.statestreet.com/stockholder. The conference call will also be
available via telephone, at +1 719/457-2617 (confirmation code
8354430). Recorded replays of the conference call will be available on
the web site, and by telephone at +1 402/220-4230, beginning at 2:00
PM today. This press release and additional financial information is
available on State Street's website, at
www.statestreet.com/stockholder, under "Financial Reports."
State Street Corporation (NYSE: STT) is the world's leading
specialist in providing institutional investors with investment
servicing, investment management and investment research and trading.
With $10.9 trillion in assets under custody and $1.5 trillion in
assets under management, State Street operates in 26 countries and
more than 100 geographic markets worldwide and employs 21,675
worldwide. For more information, visit State Street's web site at
www.statestreet.com or call 877/639-7788 (NEWS STT) toll-free in the
United States and Canada, or +1 202/266-3340 outside those countries.
This news announcement contains forward-looking statements as
defined by United States securities laws, including statements about
the financial outlook and business environment. Those statements are
based on current expectations and involve a number of risks and
uncertainties, including those related to changes in interest rates,
the value of global and regional financial markets, the extent of
volatility in currency markets, the pace of cross-border investment
activity, the pace at which State Street adds new clients or at which
existing clients use additional services, State Street's business mix,
State Street's success at integrating and converting acquisitions into
its business, the pace of worldwide economic growth and rates of
inflation, the dynamics of markets State Street serves, and
consolidations among clients and competitors. Other important factors
that could cause actual results to differ materially from those
indicated by any forward-looking statements, are set forth in State
Street's 2005 annual report on Form 10-K, particularly in Item 1A,
"Risk Factors," and the Corporation's subsequent SEC filings which
should be read before making any investment decision. The
forward-looking statements contained in this press release speak only
as of the date hereof, July 18, 2006, and the Corporation will not
undertake efforts to revise those forward-looking statements to
reflect events after this date.
Press Release Addendum
Financial Highlights
June 30, 2006
Quarters Ended % Change
--------------------------------
(Dollars in millions, except per June March June Q2 Q2
share information or where otherwise 30, 31, 30, vs. vs.
indicated) 2006 2006 2005 Q1 Q2
- ----------------------------------------------------------------------
Total Revenue $1,651 $1,523 $1,361 8% 21%
Total Expenses 1,176 1,096 1,028 7 14
Income Tax Expense 248 145 113 71 119
Income from Continuing Operations 227 282 220 (20) 3
Income from Discontinued Operations - 10 - - -
Net income 227 292 220 (22) 3
Diluted Earnings Per Share:
From Continuing Operations (1) $ .68 $ .84 $ .66 (19) 3
From Discontinued Operations - .03 -
Net Income .68 .87 .66 (22) 3
Closing Price Per Share of Common
Stock $58.09 $60.43 $48.25
Cash Dividends Declared Per Share .20 .19 .18
Return on Equity from Continuing
Operations 14.0 % 17.6 % 14.4 %
Return on Equity 14.0 18.3 14.4
Assets Under Custody (AUC) (in
trillions) $10.86 $10.74 $ 9.62
Assets Under Management (AUM) (in
trillions) 1.53 1.54 1.37
Six Months Ended % Change
----------------------------
2006
(Dollars in millions, except per share June 30, June 30, vs.
information) 2006 2005 2005
- ----------------------------------------------------------------------
Total Revenue $ 3,174 $ 2,669 19 %
Total Expenses 2,272 1,994 14
Income Tax Expense 393 229 72
Income from Continuing Operations 509 446 14
Income from Discontinued Operations 10 -
Net Income 519 446
Diluted Earnings Per Share:
From Continuing Operations (1) $ 1.52 $ 1.33 14
From Discontinued Operations .03 -
Net Income 1.55 1.33
Cash Dividends Declared Per Share .39 .35 11
Return on Equity from Continuing Operations 15.8 % 14.7 %
Return on Equity 16.1 14.7
(1) Second-quarter and first-half EPS reduced by $.25 per share for
tax charges.
STATE STREET CORPORATION
Press Release Addendum
SELECTED FINANCIAL INFORMATION
Periods ended June 30, 2006 and June 30, 2005
Quarters Ended Six Months Ended
-------------------------------------------------------
(Dollars in
millions,
except per
share June 30, June 30, % June 30, June 30, %
information) 2006 2005 Change 2006 2005 Change
- ---------------------------------- -------------------------- --------
Fee Revenue:
Servicing fees $ 683 $ 618 11 % $ 1,340 $ 1,217 10 %
Management fees 232 173 34 452 350 29
Trading
services 258 169 53 488 336 45
Securities
finance 128 113 13 209 183 14
Processing fees
and other 74 70 6 146 154 (5)
--------- --------- --------- ---------
Total fee
revenue 1,375 1,143 20 2,635 2,240 18
Net Interest
Revenue:
Interest
revenue 1,034 693 49 1,995 1,296 54
Interest
expense 772 476 62 1,467 867 69
--------- --------- --------- ---------
Net interest
revenue (1) 262 217 21 528 429 23
Provision for
loan losses - - - -
--------- --------- --------- ---------
Net interest
revenue
after
provision
for
loan losses 262 217 21 528 429 23
Gain on sales of
available-for-
sale investment
securities, net 14 1 11 -
--------- --------- --------- ---------
Total revenue 1,651 1,361 21 3,174 2,669 19
Operating
Expenses:
Salaries and
employee
benefits 684 552 24 1,319 1,076 23
Information
systems and
communications 129 121 7 261 247 6
Transaction
processing
services 134 112 20 254 220 15
Occupancy 95 114 (17) 188 206 (9)
Other 134 129 4 250 245 2
--------- --------- --------- ---------
Total
operating
expenses 1,176 1,028 14 2,272 1,994 14
--------- --------- --------- ---------
Income from
continuing
operations
before income
tax expense 475 333 43 902 675 34
Income tax
expense from
continuing
operations 248 113 393 229
---------- --------- --------- ---------
Income from
continuing
operations 227 220 3 509 446 14
Income from
discontinued
operations
before income
tax expense - - 16 -
Income tax
expense from
discontinued
operations - - 6 -
---------- --------- --------- ---------
Income from
discontinued
operations - - 10 -
---------- --------- --------- ---------
Net income $ 227 $ 220 $ 519 $ 446
========= ========= ========= =========
Earnings Per
Share From
Continuing
Operations:
Basic $ .69 $ .67 3 $ 1.54 $ 1.35 14
Diluted .68 .66 3 1.52 1.33 14
Earnings Per
Share From
Discontinued
Operations:
Basic $ - $ - $ .03 $ -
Diluted - - .03 -
Earnings Per
Share:
Basic $ .69 $ .67 $ 1.57 $ 1.35
Diluted .68 .66 1.55 1.33
OTHER SELECTED
FINANCIAL
INFORMATION
Average Shares
Outstanding
(in thousands):
Basic 330,804 330,118 331,777 330,837
Diluted 335,879 334,090 336,102 334,216
Consolidated Statement of Income prepared in accordance with
accounting principles generally accepted in the United States.
(1) Net interest revenue on a fully taxable-equivalent basis was $275
million and $228 million for the three months ended June 30, 2006
and 2005, respectively, and $552 million and $451 million for the
six months ended June 30, 2006 and 2005, respectively.
STATE STREET CORPORATION
Press Release Addendum
SELECTED FINANCIAL INFORMATION
Periods ended June 30, 2006 and March 31, 2006
Quarters Ended
-----------------------------
(Dollars in millions, except per share June March
information) 30, 31,
2006 2006 % Change
- ---------------------------------------------------------------------
Fee Revenue:
Servicing fees $ 683 $ 657 4 %
Management fees 232 220 5
Trading services 258 230 12
Securities finance 128 81 58
Processing fees and other 74 72 3
--------- ---------
Total fee revenue 1,375 1,260 9
Net Interest Revenue:
Interest revenue 1,034 961 8
Interest expense 772 695 11
--------- ---------
Net interest revenue (1) 262 266 (2)
Provision for loan losses - -
--------- ---------
Net interest revenue after provision
for loan losses 262 266 (2)
Gain (Loss) on sales of
available-for-sale
investment securities, net 14 (3)
--------- ---------
Total revenue 1,651 1,523 8
Operating Expenses:
Salaries and employee benefits 684 635 8
Information systems and communications 129 132 (2)
Transaction processing services 134 120 12
Occupancy 95 93 2
Other 134 116 16
--------- ---------
Total operating expenses 1,176 1,096 7
--------- ---------
Income from continuing operations
before income tax expense 475 427 11
Income tax expense from continuing
operations 248 145
--------- ---------
Income from continuing operations 227 282 (20)
Income from discontinued operations
before income tax expense - 16
Income tax expense from discontinued
operations - 6
--------- ---------
Income from discontinued operations - 10
--------- ---------
Net income $ 227 $ 292
========= =========
Earnings Per Share From Continuing
Operations:
Basic $ .69 $ .85 (19)
Diluted .68 .84 (19)
Earnings Per Share From Discontinued
Operations:
Basic $ - $ .03
Diluted - .03
Earnings Per Share:
Basic $ .69 $ .88
Diluted .68 .87
OTHER SELECTED FINANCIAL INFORMATION
Average Shares Outstanding (in
thousands):
Basic 330,804 332,761
Diluted 335,879 337,117
Consolidated Statement of Income prepared in accordance with
accounting principles generally accepted in the United States.
(1) Net interest revenue on a fully taxable-equivalent basis was $275
million and $277 million for the three months ended June 30, 2006
and March 31, 2006, respectively.
STATE STREET CORPORATION
Press Release Addendum
CONSOLIDATED STATEMENT OF CONDITION
- ----------------------------------------------------------------------
(Dollars in millions, except June 30, December 31, June 30,
share information) 2006 2005 2005
- ----------------------------------------------------------------------
Assets
Cash and due from banks $ 4,580 $ 2,684 $ 6,466
Interest-bearing deposits with
banks 7,634 11,275 14,728
Securities purchased under
resale agreements 10,786 8,679 11,699
Trading account assets 998 764 805
Investment securities
available for sale 55,071 54,979 50,419
Investment securities held to
maturity 4,528 4,891 3,435
Loans (less allowance of $18,
$18 and $18) 8,690 6,464 6,352
Premises and equipment 1,541 1,453 1,449
Accrued income receivable 1,468 1,364 1,249
Goodwill 1,359 1,337 1,498
Other intangible assets 463 459 466
Other assets 5,418 3,619 5,688
------------- ------------ -------------
Total assets $102,536 $97,968 $104,254
============= ============ =============
Liabilities
Deposits:
Noninterest-bearing $ 9,944 $ 9,402 $ 11,363
Interest-bearing -- U.S. 2,349 2,379 2,328
Interest-bearing -- Non-
U.S. 51,262 47,865 48,366
------------- ------------ -------------
Total deposits 63,555 59,646 62,057
Securities sold under
repurchase agreements 19,393 20,895 23,748
Federal funds purchased 1,811 1,204 303
Other short-term borrowings 1,351 1,219 1,654
Accrued taxes and other
expenses 2,653 2,632 2,541
Other liabilities 4,705 3,346 5,240
Long-term debt 2,599 2,659 2,463
------------- ------------ -------------
Total liabilities 96,067 91,601 98,006
Shareholders' Equity
Preferred stock, no par:
authorized 3,500,000; issued
none
Common stock, $1 par:
authorized 500,000,000
shares; issued 337,126,000,
337,126,000 and 337,126,000
shares 337 337 337
Surplus 308 266 287
Retained earnings 6,579 6,189 5,920
Accumulated other
comprehensive loss (377) (231) (6)
Treasury stock (at cost
6,495,000, 3,501,000 and
6,427,000 shares) (378) (194) (290)
------------- ------------ -------------
Total shareholders' equity 6,469 6,367 6,248
------------- ------------ -------------
Total liabilities and
shareholders' equity $102,536 $97,968 $104,254
============= ============ =============
CONTACT: State Street Corporation
Edward J. Resch, 617-664-1110
or
Investors:
Kelley MacDonald, 617-664-3477
or
Media:
Hannah Grove, 617-664-3377