STT State Street Corporation

State Street Corporation announced today first-quarter earnings per share from continuing operations of $0.84, up 25% from $0.67 in last year's first quarter driven by strong revenue growth as well as positive operating leverage. In addition, State Street recognized a $0.03 gain from discontinued operations related to finalizing costs associated with the divestiture of Bel Air Investment Advisors. Record revenue of $1.5 billion in the first quarter of 2006 is up 16%, or $215 million, compared to $1.3 billion in the year-ago quarter. Total expenses in the first quarter of 2006 of $1.1 billion are up 13%, or $130 million, compared to $966 million in the year-ago quarter. Net income from continuing operations of $282 million was up $56 million, or 25% from $226 million a year ago. For the first quarter of 2006, return on shareholders' equity was 17.6% compared to 15.0% in the first quarter of 2005. Ronald E. Logue, State Street's chairman and chief executive officer, said, "I am very pleased with our overall results. Our fee revenue continues to be strong across all business units and geographies, especially management fees from State Street Global Advisors. In addition, we benefited from favorable foreign exchange and equity markets. Our net interest revenue and net interest margin also increased due to the continuing execution of our balance sheet strategy. "Based on the outlook for interest rates, we may face pressure from rising rates later this year, and we also need to continue to work hard at moderating our rate of expense growth. Looking to the rest of the year, we are well positioned to achieve our previously stated goals for revenue and earnings per share growth, as well as return on equity. If the current strength continues, our results for the full year may be above the middle of the respective ranges." FIRST QUARTER RESULTS VS. YEAR-AGO QUARTER Servicing fees are up 10%, to $657 million from $599 million in last year's first quarter. The increase is attributable to new business from existing and new clients in 2006 and higher equity market valuations. Total assets under custody are $10.7 trillion, up 13%, compared with $9.5 trillion in the year-ago quarter. Daily average values for the S&P 500 Index are up 8% from the first quarter of 2005; daily average values for the MSCI(R) EAFE Index(SM) are up 17%. Investment management fees, generated by State Street Global Advisors, are $220 million, up 24% from $177 million a year ago. Management fees reflect continued new business, an increase in average month-end equity valuations, and higher 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 $230 million for the quarter, up 38% from $167 million a year ago. The increase in foreign exchange was due to stronger volumes and a favorable mix, offset by weaker volatilities. Strong transition business drove the increase in brokerage fees and other revenue. Securities finance revenue is $81 million in the quarter, up 16% compared to $70 million in the year-ago quarter, primarily reflecting an increase in the volume of securities lent. Processing and other fee revenue was down 14%, or $12 million, due to declines in sub-servicing fees and various other investments, none of which was material. Net interest revenue on a fully taxable-equivalent basis is $277 million, an increase of $54 million, or 24%, from $223 million a year ago. The increase is due to the continued repositioning of the investment portfolio, more favorable deposit pricing, and customer volumes. Expenses increased from $966 million to $1.1 billion, up $130 million, or 13%. Salaries and benefits expenses are up 21% to $635 million, primarily due to the increase in headcount and higher benefit costs, as well as the impact of incentive compensation due to improved performance. The headcount increase includes the addition of 170 staff from the previously announced acquisition of UniverseSoft Technology Company in Hangzhou, China. Expenses for information systems & communications increased $6 million, or 5%, to $132 million due to costs associated with increased global infrastructure costs. The increase in total expenses also includes higher transaction processing services, up 11% to $120 million, due to higher volumes in the investment servicing business. Other expenses were flat at $116 million. The effective tax rate in the first quarter of 2006 is 34.0%, the same as the rate in 2005. State Street purchased approximately 2.9 million shares of its common stock during the first quarter at an average price of $61.99 per share. The Corporation's remaining authorization to purchase shares is 15 million shares, an amount recently approved by the Board of Directors. FIRST-QUARTER RESULTS VS. FOURTH QUARTER First-quarter net income per share from continuing operations of $0.84 compares to net income per share of $0.74 in the fourth quarter, an increase of 14%, driven by strong revenue growth as well as positive operating leverage. Total revenue in the first quarter of $1.523 billion is up 8% versus $1.416 billion in the fourth quarter of 2005. Total expenses are $1.096 billion, up 5% versus $1.039 billion in the fourth quarter. Return on shareholders equity of 17.6% in the first quarter compares with 15.9% in the fourth quarter. Servicing fees are up 3% to $657 million and management fees are up 3% to $220 million primarily due to new business. Trading services revenue is up 26%, from $182 million to $230 million due to strong foreign exchange performance. Securities finance revenue increased 11%, from $73 million to $81 million, due to increased volumes. Net interest revenue on a fully taxable-equivalent basis is $277 million, up from $253 million, or 9%, due to the continued repositioning of the investment portfolio, favorable deposit pricing, and customer volumes. Salaries and employee benefits total $635 million, an increase of $46 million, or 8%, from $589 million due to increased headcount and higher benefit costs, as well as the impact of incentive compensation. More than one third of the increase in our headcount from the fourth quarter was due to the previously announced acquisition of UniverseSoft Technology Company in Hangzhou, China. Transaction processing is up 2% to $120 million due to increased volumes in the investment servicing business, and occupancy is up 4% to $93 million from $89 million due to annual increases in operating costs. Information systems and communications increased 8% from $122 million to $132 million, due to costs associated with increased global infrastructure investments. Other expenses are down $5 million from $121 million to $116 million due to lower professional fees. ADDITIONAL INFORMATION All per share amounts represent fully diluted earnings per share. INVESTOR CONFERENCE CALL State Street will webcast an investor conference call today, Tuesday, April 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 4414294). 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 $10.7 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 and employs 21,375 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 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, April 18, 2006, and the Corporation will not undertake efforts to revise those forward-looking statements to reflect events after this date. -0- *T These financial schedules should be used in conjunction with State Street's quarterly earnings press release. Press Release Addendum Financial Highlights March 31, 2006 Quarters Ended % Change ----------------------------------------- (Dollars in millions, except March December March Q1 Q1 per share information or 31, 31, 31, vs. vs. where otherwise indicated) 2006 2005 2005 Q4 Q1 ---------------------------------------------------------------------- Total Revenue $ 1,523 $ 1,416 $ 1,308 8% 16% Total Expenses 1,096 1,039 966 5 13 Income from Continuing Operations 282 249 226 13 25 Income from Discontinued Operations 10 - - Net income 292 249 226 17 29 Diluted Earnings Per Share: From Continuing Operations $ .84 $ .74 $ .67 14 25 From Discontinued Operations .03 - - Net Income .87 .74 .67 18 30 Closing Price Per Share of Common Stock $ 60.43 $ 55.44 $ 43.72 Cash Dividends Declared Per Share .19 .19 .17 Return on Equity from Continuing Operations 17.6% 15.9% 15.0% Return on Equity 18.3 15.9 15.0 Assets Under Custody (AUC) (in trillions) $ 10.74 $ 10.12 $ 9.52 Assets Under Management (AUM) (in trillions) 1.54 1.44 1.37 STATE STREET CORPORATION Press Release Addendum SELECTED FINANCIAL INFORMATION Quarters Ended ---------------------------- (Dollars in millions, except per share March 31, March 31, information) 2006 2005 % Change ------------------------------------------------------------ --------- Fee Revenue: Servicing fees $ 657 $ 599 10 % Management fees 220 177 24 Trading services 230 167 38 Securities finance 81 70 16 Processing fees and other 72 84 (14) --------- --------- Total fee revenue 1,260 1,097 15 Net Interest Revenue: Interest revenue 961 603 59 Interest expense 695 391 78 --------- --------- Net interest revenue (1) 266 212 25 Provision for loan losses - - --------- --------- Net interest revenue after provision for loan losses 266 212 25 Loss on sales of available-for-sale investment securities, net (3) (1) --------- --------- Total revenue 1,523 1,308 16 Operating Expenses: Salaries and employee benefits 635 524 21 Information systems and communications 132 126 5 Transaction processing services 120 108 11 Occupancy 93 92 1 Other 116 116 - --------- --------- Total operating expenses 1,096 966 13 --------- --------- Income from continuing operations before income tax expense 427 342 25 Income tax expense from continuing operations 145 116 --------- --------- Income from continuing operations 282 226 25 Income from discontinued operations before income tax expense 16 - Income tax expense from discontinued operations 6 - --------- --------- Income from discontinued operations 10 - --------- --------- Net income $ 292 $ 226 ========= ========= Earnings Per Share From Continuing Operations: Basic $ .85 $ .68 25 Diluted .84 .67 25 Earnings Per Share From Discontinued Operations: Basic $ .03 $ - Diluted .03 - Earnings Per Share: Basic $ .88 $ .68 Diluted .87 .67 OTHER SELECTED FINANCIAL INFORMATION Average Shares Outstanding (in thousands): Basic 332,761 331,563 Diluted 337,117 334,653 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 $277 million and $223 million for the three months ended March 31, 2006 and 2005, respectively STATE STREET CORPORATION Press Release Addendum SELECTED FINANCIAL INFORMATION Quarters ended March 31, 2006 and December 31, 2005 Quarters Ended ----------------------------- (Dollars in millions, except per share March 31, December 31, information) 2006 2005 % Change ---------------------------------------------------------------------- Fee Revenue: Servicing fees $ 657 $ 637 3 % Management fees 220 213 3 Trading services 230 182 26 Securities finance 81 73 11 Processing fees and other 72 71 1 --------- --------- Total fee revenue 1,260 1,176 7 Net Interest Revenue: Interest revenue 961 861 12 Interest expense 695 619 12 --------- --------- Net interest revenue (1) 266 242 10 Provision for loan losses - - --------- --------- Net interest revenue after provision for loan losses 266 242 10 Loss on sales of available-for-sale investment securities, net (3) (2) --------- --------- Total revenue 1,523 1,416 8 Operating Expenses: Salaries and employee benefits 635 589 8 Information systems and communications 132 122 8 Transaction processing services 120 118 2 Occupancy 93 89 4 Other 116 121 (4) --------- --------- Total operating expenses 1,096 1,039 5 --------- --------- Income from continuing operations before income tax expense 427 377 13 Income tax expense from continuing operations 145 128 --------- --------- Income from continuing operations 282 249 13 Income from discontinued operations before income tax expense 16 - Income tax expense from discontinued operations 6 - --------- --------- Income from discontinued operations 10 - --------- --------- Net income $ 292 $ 249 ========= ========= Earnings Per Share From Continuing Operations: Basic $ .85 $ .75 13 Diluted .84 .74 14 Earnings Per Share From Discontinued Operations: Basic $ .03 $ - Diluted .03 - Earnings Per Share: Basic $ .88 $ .75 Diluted .87 .74 OTHER SELECTED FINANCIAL INFORMATION Average Shares Outstanding (in thousands): Basic 332,761 330,689 Diluted 337,117 337,061 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 $277 million and $253 million for the three months ended March 31, 2006 and December 31, 2005, respectively. STATE STREET CORPORATION Press Release Addendum CONSOLIDATED STATEMENT OF CONDITION ---------------------------------------------------------------------- (Dollars in millions, except March 31, December 31, March 31, share information) 2006 2005 2005 ---------------------------------------------------------------------- Assets Cash and due from banks $ 3,405 $ 2,684 $ 2,926 Interest-bearing deposits with banks 10,473 11,275 20,160 Securities purchased under resale agreements 11,058 8,679 12,699 Federal funds sold - - 1,000 Trading account assets 1,120 764 521 Investment securities available for sale 55,395 54,979 46,892 Investment securities held to maturity 4,575 4,891 1,321 Loans (less allowance of $18, $18 and $18) 8,941 6,464 4,830 Premises and equipment 1,553 1,453 1,450 Accrued income receivable 1,323 1,364 1,174 Goodwill 1,340 1,337 1,472 Other intangible assets 447 459 485 Other assets 4,526 3,619 5,164 ----------- ---------- ------------- Total assets $ 104,156 $ 97,968 $ 100,094 =========== ========== ============= Liabilities Deposits: Noninterest-bearing $ 10,837 $ 9,402 $ 10,301 Interest-bearing -- U.S. 2,339 2,379 2,711 Interest-bearing -- Non-U.S. 48,623 47,865 45,306 ----------- ---------- ------------- Total deposits 61,799 59,646 58,318 Securities sold under repurchase agreements 21,195 20,895 20,698 Federal funds purchased 3,631 1,204 1,739 Other short-term borrowings 1,560 1,219 2,840 Accrued taxes and other expenses 2,501 2,632 2,410 Other liabilities 4,440 3,346 5,628 Long-term debt 2,617 2,659 2,436 ----------- ---------- ------------- Total liabilities 97,743 91,601 94,069 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 238 266 282 Retained earnings 6,418 6,189 5,759 Accumulated other comprehensive (loss) income (350) (231) (95) Treasury stock (at cost 4,645,000, 3,501,000 and 5,849,000 shares) (230) (194) (258) ----------- ---------- ------------- Total shareholders' equity 6,413 6,367 6,025 ----------- ---------- ------------- Total liabilities and shareholders' equity $ 104,156 $ 97,968 $ 100,094 =========== ========== ============= *T