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. -0-
*T 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 ============= ============ ============= *T
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