STT State Street Corporation

State Street Corporation announced today second-quarter earnings per share of $0.66. This result is up 2% from $0.65 in last year's second quarter, which included $0.03 per share for merger and integration costs associated with the acquisition of a substantial portion of Deutsche Bank's Global Securities Services (GSS) business. Revenue of $1.36 billion in the second quarter of 2005 is up 6%, or $74 million, compared to $1.29 billion in the year-ago quarter. Total expenses in the second quarter of 2005 of $1.03 billion are up 8%, or $75 million, which includes $26 million for a previously announced subleasing agreement, compared to $953 million in the year-ago quarter. Net income is $220 million, the same as in the year-ago quarter. For the second quarter of 2005, return on stockholders' equity is 14.4% compared to 14.9% in the second quarter of 2004. Ronald E. Logue, State Street's chairman and chief executive officer, said, "We are pleased with the results of the quarter, which were driven by continued strong fee revenue growth in investment servicing and management. Excluding the impact of the sub-lease agreement, we achieved sequential-quarter positive operating leverage again this quarter, helped by our strong focus on expense control. We are also pleased with our progress in creating opportunities to more actively manage our balance sheet in the face of a challenging interest-rate environment." Looking forward, Logue concluded, "As in past years, we expect seasonal weakness in market-driven revenue in the third quarter, however, we are positioned to achieve our financial goals and continue to expect that our results will fall toward the lower end of the previously announced ranges." SECOND QUARTER RESULTS VS. YEAR-AGO QUARTER Servicing fees are up 8%, to $618 million from $570 million in last year's second quarter. The increase is attributable to new business from existing and new clients in 2005 and higher equity market valuations. Total assets under custody are $9.6 trillion, up 5%, compared with $9.1 trillion in the year-ago quarter. Daily average values for the S&P 500 Index are up 5% from the second quarter of 2004; daily average values for the MSCI(R) EAFE Index(SM) are up 13%. The average values for the NASDAQ are up about 1%. Investment management fees, generated by State Street Global Advisors, are $173 million, up 13% from $153 million a year ago. Management fees reflect continued new business and an increase in average month-end equity valuations. Total assets under management are $1.4 trillion, up 12%, compared to $1.2 trillion the previous year. Securities lending revenue is $113 million in the quarter, up 27% compared to $89 million in the year-ago quarter, reflecting improved spreads and an increase in demand. Both quarters' results represent seasonally high activity. Trading services revenue, which includes foreign exchange trading revenue and brokerage and other fees, is $169 million for the quarter, up 8% from $156 million a year ago. The increase was driven by strong transition management business. Processing fees and other revenue decreased $7 million, or 9%, to $70 million primarily due to a decline in payments from Deutsche Bank in consideration of net interest revenue for assets that are in transition to the State Street balance sheet. Net interest revenue on a fully taxable-equivalent basis is $228 million, a decrease of $10 million from $238 million a year ago. The reduction of net interest revenue is attributed to a flatter yield curve and narrower spreads, slightly offset by an increase in average balance sheet size. Expenses increased from $953 million to $1.03 billion, up $75 million, or 8%. Salaries and benefits expenses are up 8% to $552 million, primarily due to the impact of merit adjustments and benefits expense. Expenses for information systems & communications declined $9 million, or 7%, to $121 million due to reductions related to the conversion of Deutsche Bank's Global Securities Services business. The increase in expenses also includes higher transaction processing services, up 9% to $112 million, due to higher non-US volumes in the brokerage business. Occupancy expense increased 36%, or $30 million, to $114 million primarily due to the impact of the previously announced agreement to sub-lease several floors at the Corporation's headquarters building. Due to this transaction, the Corporation recorded a pre-tax charge of $26 million, or $0.05 per share, in the second quarter. Other expenses rose 17%, or $19 million, to $129 million due to increases in professional services related to the planned expansion of the Treasury group function, as well as compliance, regulatory requirements, and growth initiatives. The effective tax rate was 34.0% in both quarters. State Street purchased approximately 2.2 million shares of its common stock during the second quarter at an average price of $46.36 per share. The remaining authorization to purchase shares is 12.8 million shares. SECOND-QUARTER RESULTS VS. FIRST QUARTER Second-quarter net income per share of $0.66 compares to net income per share of $0.67 in the first quarter. Total revenue in the second quarter of $1.36 billion is up 4.1% versus $1.31 billion in the first quarter. Total expenses, including $26 million for the sub-lease agreement, are $1.03 billion, up 6.4% versus $966 million in the first quarter. Excluding the impact of the sub-lease agreement, expenses rose 3.7%. Return on stockholders equity of 14.4% in the second quarter compares with 15.0% in the first quarter. Servicing fees are up 3% to $618 million due to new business and management fees are down 2% to $173 million due a slight decline in equity valuations. Securities lending revenue increased 61%, from $70 million to $113 million, due to improved spreads and seasonally high volumes. Processing fees and other are down $14 million, or 17%, from $84 million to $70 million. Net interest revenue on a fully taxable-equivalent basis increased $5 million, or 2%, to $228 million, due to a slightly larger balance sheet, offset somewhat by a flatter yield curve. Salaries and employee benefits total $552 million, an increase of $28 million, or 5%, from $524 million, due to the impact of slightly higher staff levels, benefit costs, and merit increases. Other expenses are up $13 million, or 11%, from $116 million to $129 million primarily due to costs associated with expansion of the Treasury group infrastructure, compliance and regulatory requirements, and growth initiatives. Occupancy expense increased to $114 million from $92 million due to the charge associated with the previously announced agreement to sub-lease several floors at the Corporation's headquarters. 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 19, 2005, 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 815851). 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 $9.6 trillion in assets under custody and $1.4 trillion in assets under management, State Street operates in 25 countries and more than 100 geographic markets worldwide and employs 20,100 people 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 the pace at which State Street adds new clients or at which existing clients use additional services, the value of global and regional financial markets, the pace of cross-border investment activity, changes in interest rates, the pace of worldwide economic growth and rates of inflation, the extent of volatility in currency markets, consolidations among clients and competitors, State Street's business mix, the dynamics of markets State Street serves, and State Street's success at integrating and converting acquisitions into its business. 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 2004 annual report on Form 10-K and subsequent SEC filings. State Street encourages investors to read the Corporation's annual report, particularly the section on factors that may affect financial results, and its subsequent SEC filings for additional information with respect to any forward-looking statements and prior to making any investment decision. The forward-looking statements contained in this press release speak only as of the date hereof, July 19, 2005, and the Corporation will not undertake efforts to revise those forward-looking statements to reflect events after this date. -0- *T STATE STREET CORPORATION Press Release Addendum Financial Highlights June 30, 2005 Quarter Ended % Change ------------------------------------------ Q2 Q2 (Dollars in millions, except June 30, March 31, June 30, vs. vs. per share information) 2005 2005 2004 Q1 Q2 ---------------------------------------------------------------------- Total Revenue $ 1,361 $ 1,308 $ 1,287 4% 6% Total Expenses 1,028 966 953 6 8 Net Income 220 226 220 (3) - Earning Per Share: Basic $ .67 $ .68 $ .66 (1) 2 Diluted .66 .67 .65 (1) 2 Cash dividends Declared Per Share .18 .17 .16 Return on Equity 14.4% 15.0% 14.9% Closing price per share of common stock $ 48.25 $ 43.72 $ 49.04 Assets under custody (AUC) (in trillions) $ 9.62 $ 9.52 $ 9.15 Assets under management (AUM) (in trillions) 1.37 1.37 1.22 Six Months Ended % Change ------------------------------- 2005 (Dollars in millions, except June 30, June 30, vs. per share information) 2005 2004 2004 ----------------------------------------------------------- Total Revenue $ 2,669 $ 2,506 7 Total Expenses 1,994 1,861 7 Net Income 446 437 2 Earning Per Share: Basic $ 1.35 $ 1.31 3 Diluted 1.33 1.28 4 Cash dividends Declared Per Share .35 .31 Return on Equity 14.7% 14.9% STATE STREET CORPORATION Press Release Addendum SELECTED FINANCIAL INFORMATION (Dollars in millions, Quarter Ended Six Months Ended except per ----------------------- ------------------------- share June 30, June 30, % June 30, June 30, % information) 2005 2004(3) Change 2005 2004(3) Change ------------------------ ------------------------- Fee Revenue: Servicing fees $ 618 $ 570 8% $ 1,217 $ 1,125 8% Management fees 173 153 13 350 300 17 Securities lending 113 89 27 183 153 20 Trading services 169 156 8 336 323 4 Processing fees and other 70 77 (9) 154 157 (2) ------- ------- -------- -------- Total fee revenue 1,143 1,045 9 2,240 2,058 9 Net Interest Revenue: Interest revenue 693 408 70 1,296 792 64 Interest expense 476 182 162 867 363 139 ------- ------- -------- -------- Net interest revenue (1) 217 226 (4) 429 429 - Provision for loan losses - - - - ------- ------- -------- -------- Net interest revenue after provision for loan losses 217 226 (4) 429 429 - Gain on the sales of available-for- sale investment securities, net 1 16 (94) - 19 (100) ------- ------ -------- ------- Total revenue 1,361 1,287 6 2,669 2,506 7 Operating Expenses: Salaries and employee benefits 552 510 8 1,076 972 11 Information systems and communications 121 130 (7) 247 269 (8) Transaction processing services 112 103 9 220 199 11 Occupancy 114 84 36 206 174 18 Merger and integration costs (2) - 16 (100) - 34 (100) Other 129 110 17 245 213 15 ------- ------- -------- -------- Total operating expenses 1,028 953 8 1,994 1,861 7 ------- ------- -------- -------- Income before income tax expense 333 334 675 645 Income tax expense 113 114 229 208 ------- ------- -------- -------- Net income $ 220 $ 220 - $ 446 $ 437 2 ======= ======= ======== ======== Earnings Per Share: Basic $ .67 $ .66 2 $ 1.35 $ 1.31 3 Diluted .66 .65 2 1.33 1.28 4 OTHER SELECTED FINANCIAL INFORMATION Average Shares Outstanding (in thousands): Basic 330,118 334,930 330,837 334,782 Diluted 334,090 340,647 334,216 341,232 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 $228 million and $238 million for the three months ended June 30, 2005 and June 30, 2004, respectively, and $451 million and $452 million for the six months ended June 30, 2005 and June 30, 2004, respectively. (2) Reported earnings for the quarter and six months ended June 30, 2004 included $16 million and $34 million, respectively, of pre-tax merger and integration costs ($.03 and $.07 per share, respectively) relating to the integration of the Deutsche Bank Global Securities Service Business (GSS). (3) Certain prior period amounts have been reclassified to conform to current period presentation. STATE STREET CORPORATION Press Release Addendum SELECTED FINANCIAL INFORMATION Three months ended June 30, 2005 and March 31, 2005 Quarter Ended ---------------------------- (Dollars in millions, except June 30, March 31, per share information) 2005 2005 % Change --------------------------------------------------------- --------- Fee Revenue: Servicing fees $ 618 $ 599 3 % Management fees 173 177 (2) Securities lending 113 70 61 Trading services 169 167 1 Processing fees and other 70 84 (17) --------- --------- Total fee revenue 1,143 1,097 4 Net Interest Revenue: Interest revenue 693 603 15 Interest expense 476 391 22 --------- --------- Net interest revenue (1) 217 212 2 Provision for loan losses - - - --------- --------- Net interest revenue after provision for loan losses 217 212 2 Gain(loss) on the sales of available- for-sale investment securities, net 1 (1) (200) --------- --------- Total revenue 1,361 1,308 4 Operating Expenses: Salaries and employee benefits 552 524 5 Information systems and communications 121 126 (4) Transaction processing services 112 108 4 Occupancy 114 92 24 Other 129 116 11 --------- --------- Total operating expenses 1,028 966 6 --------- --------- Income before income tax expense 333 342 Income tax expense 113 116 --------- --------- Net income $ 220 $ 226 (3) ========= ========= Earnings Per Share: Basic $ .67 $ .68 (1) Diluted .66 .67 (1) OTHER SELECTED FINANCIAL INFORMATION Average Shares Outstanding (in thousands): Basic 330,118 331,563 Diluted 334,090 334,653 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 $228 million and $223 million for the three months ended June 30, 2005 and March 31, 2005, respectively. STATE STREET CORPORATION Press Release Addendum CONSOLIDATED STATEMENT OF CONDITION ---------------------------------------------------------------------- (Dollars in millions, except June 30, December 31, June 30, share information) 2005 2004 2004 ---------------------------------------------------------------------- Assets Cash and due from banks $ 6,466 $ 2,035 $ 3,588 Interest-bearing deposits with banks 14,728 20,634 28,920 Securities purchased under resale agreements 11,699 12,878 10,228 Federal funds sold - 5,450 2,050 Trading account assets 805 745 448 Investment securities 53,854 37,571 36,011 Loans (less allowance of $18, $18 and $36) 6,352 4,611 5,433 Premises and equipment 1,449 1,444 1,370 Accrued income receivable 1,249 1,204 1,140 Goodwill 1,498 1,497 1,396 Other intangible assets 466 494 542 Other assets 5,688 5,477 3,014 ------------- ------------ ------------ Total assets $104,254 $94,040 $94,140 ============= ============ ============ Liabilities Deposits: Noninterest-bearing $ 11,363 $13,671 $10,223 Interest-bearing -- U.S. 2,328 2,843 4,594 Interest-bearing -- Non-U.S. 48,366 38,615 40,530 ------------- ------------ ------------ Total deposits 62,057 55,129 55,347 Securities sold under repurchase agreements 23,748 21,881 22,458 Federal funds purchased 303 435 1,203 Other short-term borrowings 1,654 1,343 1,428 Accrued taxes and other expenses 2,541 2,603 2,375 Other liabilities 5,240 4,032 3,072 Long-term debt 2,463 2,458 2,347 ------------- ------------ ------------ Total liabilities 98,006 87,881 88,230 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 287 289 304 Retained earnings 5,920 5,590 5,340 Accumulated other comprehensive (loss) income (6) 92 (5) Treasury stock (at cost 6,427,000, 3,481,000 and 1,548,000 shares) (290) (149) (66) -------------------------------------------- ------------ ------------ Total shareholders' equity 6,248 6,159 5,910 ------------- ------------ ------------ Total liabilities and shareholders' equity $104,254 $94,040 $94,140 ============= ============ ============ *T