STT State Street Corporation

State Street Corporation today announced 2006 fourth-quarter earnings per share of $0.86 on net income of $291 million. Earnings per share increased 16% versus the 2005 fourth quarter�s results of $0.74 per share on net income of $249 million. Total revenue of $1.622 billion in the fourth quarter of 2006 is up 15% from $1.416 billion in the fourth quarter a year ago. Expenses of $1.18 billion are up 13% from $1.04 billion in the year-ago quarter. For the fourth quarter of 2006, return on shareholders� equity of 15.9% is flat with the fourth quarter of 2005. For the full year, earnings per share from continuing operations of $3.21 per share, on net income of $1.1 billion, increased 14% from $2.82 per share from continuing operations in 2005. Earnings per share in 2006 includes $0.25 per share, or $83 million, of tax charges recorded in the second quarter. Excluding these charges, earnings per share from continuing operations would have been $3.46, up 23%, on net income of $1.2 billion, compared to $2.82 per share from continuing operations on income from continuing operations of $945 million in 2005. Return on shareholders� equity from continuing operations in 2006 of 16.0 %, or 17.1% excluding the tax charges, compares with return on equity from continuing operations of 15.3% in 2005. Total revenue, on a fully taxable-equivalent basis, is up 15%, from $5.52 billion in 2005 to a record level of $6.35 billion in 2006. Operating expenses in 2006 of $4.54 billion increased 12% from $4.04 billion in 2005. Commenting on the performance, Ronald E. Logue, State Street's chairman and chief executive officer, said, "I�m pleased that we exceeded the financial goals we set for the year, helped by a favorable operating environment. Nearly every revenue item on our income statement increased in double digits on a year-over-year basis, and we achieved positive operating leverage again this year. Our servicing fees continued strong. Revenue at State Street Global Advisors, our investment management arm, grew 26% in 2006 compared to 2005, and it is increasingly becoming a more meaningful contributor to State Street�s results. Our strategy of more actively managing the balance sheet contributed to an annual increase of 21% in fully taxable-equivalent net interest revenue. Net interest margin equaled 1.24% for 2006. Additionally, our non-U.S. revenue now represents approximately 43% of total revenue, in line with our long-term goal of 50% over several years.� Logue concluded, �During 2007 we will build on the progress we made in 2006, particularly internationally. We continue to target positive operating leverage on an annual basis. We will continue to execute against our long-term financial goals of revenue growth of 8% to 12%, earnings per share growth of 10% to 15%, and return on equity of 14% to 17%. Our 2007 target is to achieve in the top half of these ranges.� FOURTH-QUARTER RESULTS VS. YEAR-AGO QUARTER Total revenue of $1.622 billion in the fourth quarter of 2006 is up from $1.416 billion, or 15%, from the fourth quarter of 2005. Servicing fees are $698 million, up $61 million or 10%, from $637 million in the year-ago quarter. The increase is attributable to new business from existing and new clients and higher equity valuations in 2006. Total assets under custody at quarter end are $11.85 trillion, a record level, up 17%, compared with $10.12 trillion in the year-ago quarter. Management fees, generated by State Street Global Advisors, are $253 million, up $40 million, or 19%, compared to $213 million in the year-ago quarter. The increase in management fees reflects new business from existing and new clients and higher equity valuations in 2006. Total assets under management at quarter end are at a record level, $1.7 trillion, up 21%, compared to $1.4 trillion in the previous year-ago quarter. Average month-end values compared to the fourth quarter of 2005, are up 13% for the S&P 500 Index and up 10% for the NASDAQ; average month-end values for the MSCI� EAFE IndexSM are up 24%. The total return of the Lehman US Aggregate bond index for the fourth quarter is 1.24%. Trading services revenue, which includes foreign exchange trading revenue and brokerage services, is up 12%, from $182 million to $203 million. The increase is driven by higher volumes in foreign exchange, offset partially by lower volatility. Securities finance revenue is $90 million in the quarter, compared to $73 million in the year-ago quarter, an increase of 23%. The increase primarily reflects improving demand for securities on loan. Processing and other revenue is down 14%, or $10 million to $61 million partially due to the third-quarter transfer of tax-exempt investments onto the balance sheet. Fully taxable-equivalent net interest revenue is $325 million, up 28% from $253 million in last year�s fourth quarter. The increase is due to a higher level of customer deposits, a more favorable non-US rate environment, and a higher level of lower-cost funding. Total expenses of $1.18 billion in the fourth quarter of 2006 are up 13% from expenses of $1.04 billion in the fourth quarter of 2005. Salaries and employee benefits expenses increased $105 million from $589 million to $694 million, driven principally by incentive compensation due to improved performance and a higher headcount. Transaction processing expense increased slightly to $121 million. Information systems and communications expense was down slightly at $119 million. Occupancy expenses of $94 million in 2006 compare to $89 million in 2005. Other expenses increased $29 million to $150 million, which includes costs to support growth initiatives. The effective tax rate was 34.6% in the fourth quarter of 2006 compared with 34% in the fourth quarter of 2005. We expect the rate for 2007 to be 35.0%. FOURTH-QUARTER RESULTS VS. THIRD QUARTER Fourth-quarter earnings per share of $0.86 is up 4%, or $0.03, compared to third quarter earnings per share of $0.83. The third-quarter results include a cumulative gain of $15 million, or $0.03 per share, in trading services revenue related to the Corporation�s tax-exempt investment programs. Excluding this gain, earnings per share would have increased 8%. Total revenue in the fourth quarter of $1.6 billion is up 7%, or $107 million, or $122 million excluding the cumulative gain in the third quarter, versus $1.5 billion in the third quarter. Total expenses in the fourth quarter of $1.2 billion are up $88 million compared to $1.1 billion in the third quarter. Servicing fee revenue is up 2% and management fee revenue is up 6%, both improvements due to higher equity valuations and business from new and existing customers. Trading services revenue is up 19% to $203 million due to increased volumes in FX and improved fees from transition management, offset by lower volatilities in FX trading. Excluding the impact of the third-quarter $15 million cumulative gain noted above, the increase would have been 30%. Securities finance revenue increased 3% to $90 million. Processing fees and other revenue declined 6% to $61 million due to lower tax-advantaged investment income. Fully taxable-equivalent net interest revenue increased 18% to $325 million due to higher levels of customer deposits and lower-cost funds. Salaries and employee benefits expense is up 9% due to increased incentive compensation expense. Occupancy expense was up 3% due to higher operating costs. Other expense increased 27%, or $32 million, to $150 million partially due to higher professional fees to support growth initiatives. FULL YEAR 2006 VS. 2005 Total revenue on a fully taxable-equivalent basis increased 15% from $5.52 billion to $6.35 billion. Servicing fees increased 10%, from $2.47 billion to $2.72 billion. Management fees increased 26%, from $751 million to $943 million. Trading services revenue increased 24%, from $694 million to $862 million and securities finance revenue increased 17%, from $330 million to $386 million. Processing fees and other revenue decreased 10%, to $272 million from $302 million. Fully taxable-equivalent net interest revenue increased 21%, from $949 million to $1.15 billion. Expenses increased 12%, from $4.04 billion to $4.54 billion, including increases of 19% to $2.65 billion in salaries and employee benefits expense. Transaction processing expense increased 10% to $496 million and information systems and communications increased 3% to $501 million. Occupancy expense decreased 5% to $373 million. Other expenses increased 7% to $518 million. ADDITIONAL INFORMATION All per share amounts represent diluted earnings per share. On January 12, 2007, the IRS released guidance concerning the Tax Increase Prevention and Reconciliation Act, or "TIPRA". State Street previously reported a second-quarter 2006 tax-related charge of approximately $59 million, or $.18 per share, related to TIPRA. The Corporation is evaluating this new guidance and believes that it may result in a reduction in income tax expense as a result of a reversal of a portion of the previously recorded tax-related charge. The amount and timing of this potential tax reduction is still being evaluated. INVESTOR CONFERENCE CALL State Street will webcast an investor conference call today, Wednesday, January 17, 2007, at 9:30 a.m. EST, available at www.statestreet.com/stockholder. The conference call will also be available via telephone, at +1 719/457-2680 (confirmation code 4193234). 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 services. With $11.9 trillion in assets under custody and $1.7 trillion in assets under management at December 31, 2006, State Street operates in 26 countries and more than 100 geographic markets worldwide and employs 21,700 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 +1 678/999-4577 outside those countries. This news announcement contains forward-looking statements as defined by United States securities laws, including statements about our financial goals, 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 and subsequent SEC filings. State Street encourages investors to read its 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, January 17, 2007, and we will not undertake efforts to revise those forward-looking statements to reflect events after this date. STATE STREET CORPORATION Press Release Addendum � Financial Highlights December 31, 2006 � � Quarters Ended � % Change� � Q4 vs. Q4 vs. (Dollars in millions, except per share amounts or where otherwise noted) December 31, September 30, December 31, � 2006� � 2006� � 2005� � Q3 � Q4 � � Total Revenue $ 1,622� $ 1,515� $ 1,416� 7� % 15� % Total Expenses 1,178� 1,090� 1,039� 8� 13� Income Tax Expense 153� 147� 128� 4� 20� Net Income 291� 278� 249� 5� 17� � Diluted Earnings Per Share $ .86� $ .83� $ .74� 4� 16� � Closing Price Per Share of Common Stock $ 67.44� $ 62.40� $ 55.44� Cash Dividends Declared Per Share .21� .20� .19� � Return on Equity 15.9� % 16.4� % 15.9� % � Assets Under Custody (AUC) (in trillions) $ 11.85� $ 11.27� $ 10.12� Assets Under Management (AUM) (in trillions) 1.75� 1.63� 1.44� Years Ended � % Change� 2006� December 31, December 31, vs. (Dollars in millions, except per share amounts) � 2006� � 2005� � 2005� � Total Revenue $ 6,311� $ 5,473� 15� % Total Expenses 4,540� 4,041� 12� Income Tax Expense 693� 487� 42� Income from Continuing Operations 1,078� 945� 14� Income (Loss) from Discontinued Operations 10� (107) Net Income 1,088� 838� � Diluted Earnings (Loss) Per Share: From Continuing Operations $ 3.21� $ 2.82� 14� From Discontinued Operations .03� (.32) Net Income 3.24� 2.50� � Cash Dividends Declared Per Share $ .80� $ .72� 11� � Return on Equity from Continuing Operations 16.0� % 15.3� % Return on Equity 16.1� 13.6� STATE STREET CORPORATION Press Release Addendum � SELECTED FINANCIAL INFORMATION Quarters and years ended December 31, 2006 and December 31, 2005 � Quarters Ended � Years Ended � December 31, December 31, December 31, December 31, (Dollars in millions, except per share amounts) 2006� � 2005� %Change� 2006� � 2005� %Change� � Fee Revenue: Servicing fees $ 698� $ 637� 10� % $ 2,723� $ 2,474� 10% Management fees 253� 213� 19� 943� 751� 26� Trading services 203� 182� 12� 862� 694� 24� Securities finance 90� 73� 23� 386� 330� 17� Processing fees and other � 61� � 71� (14) � 272� � 302� (10) Total fee revenue 1,305� 1,176� 11� 5,186� 4,551� 14� � Net Interest Revenue: Interest revenue 1,225� 861� 42� 4,323� 2,930� 48� Interest expense � 909� � 619� 47� � 3,213� � 2,023� 59� Net interest revenue (1) 316� 242� 31� 1,110� 907� 22� Provision for loan losses � -� � -� � -� � -� Net interest revenue after provision for loan losses 316� 242� 31� 1,110� 907� 22� � Gains (Losses) on sales of available-for-sale investment securities, net 1� (2) 15� (1) Gain on sale of Private Asset Management business � -� � -� � -� � 16� Total revenue 1,622� 1,416� 15� 6,311� 5,473� 15� � Operating Expenses: Salaries and employee benefits 694� 589� 18� 2,652� 2,231� 19� Information systems and communi-cations 119� 122� (2) 501� 486� 3� Transaction processing services 121� 118� 3� 496� 449� 10� Occupancy 94� 89� 6� 373� 391� (5) Other � 150� � 121� 24� � 518� � 484� 7� Total operating expenses � 1,178� � 1,039� 13� � 4,540� � 4,041� 12� Income from continuing operations before income tax expense 444� 377� 18� 1,771� 1,432� 24� Income tax expense from continuing operations � 153� � 128� � 693� � 487� Income from continuing operations 291� 249� 17� 1,078� 945� 14� � Income (Loss) from discontinued operations before income tax expense -� -� 16� (165) Income tax expense (benefit) from discontinued operations � -� � -� � 6� � (58) Income (Loss) from discontinued operations � -� � -� � 10� � (107) Net income $ 291� $ 249� $ 1,088� $ 838� � Earnings Per Share From Continuing Operations: Basic $ .87� $ .75� 16� $ 3.25� $ 2.86� 14� Diluted .86� .74� 16� 3.21� 2.82� 14� � Earnings (Loss) Per Share From Discontinued Operations: Basic $ -� $ -� $ .03� $ (.33) Diluted -� -� .03� (.32) � Earnings Per Share: Basic $ .87� $ .75� $ 3.28� $ 2.53� Diluted .86� .74� 3.24� 2.50� � Average Shares Outstanding (in thousands): Basic 331,421� 330,689� 331,350� 330,361� Diluted 337,429� 337,061� 335,732� 334,636� � 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 $325 million and $253 million for the three months ended December 31, 2006 and 2005, respectively, and $1.15 billion and $949 million for the years ended December 31, 2006 and 2005, respectively. STATE STREET CORPORATION Press Release Addendum � SELECTED FINANCIAL INFORMATION Quarters ended December 31, 2006 and September 30, 2006 � � Quarters Ended � � � December 31, September 30, (Dollars in millions, except per share amounts) � 2006� � � 2006� � % Change� � � Fee Revenue: Servicing fees $ 698� $ 685� 2� % Management fees 253� 238� 6� Trading services 203� 171� 19� Securities finance 90� 87� 3� Processing fees and other � 61� � 65� (6) Total fee revenue 1,305� 1,246� 5� � Net Interest Revenue: Interest revenue 1,225� 1,103� 11� Interest expense � 909� � 837� 9� Net interest revenue (1) 316� 266� 19� Provision for loan losses � -� � -� Net interest revenue after provision for loan losses 316� 266� 19� � Gains on sales of available-for-sale investment securities, net � 1� � 3� Total revenue 1,622� 1,515� 7� � Operating Expenses: Salaries and employee benefits 694� 639� 9� Information systems and communications 119� 121� (2) Transaction processing services 121� 121� -� Occupancy 94� 91� 3� Other � 150� � 118� 27� Total operating expenses � 1,178� � 1,090� 8� Income before income tax expense 444� 425� 4� Income tax expense � 153� � 147� Net income $ 291� $ 278� 5� � Earnings Per Share: Basic $ .87� $ .84� 4� Diluted .86� .83� 4� � Average Shares Outstanding (in thousands): Basic 331,421� 330,440� Diluted 337,429� 335,513� � 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 $325 million and $275 million for the three months ended December 31, 2006 and September 30, 2006. STATE STREET CORPORATION Press Release Addendum � CONSOLIDATED STATEMENT OF CONDITION � � � � � � � December 31, December 31, (Dollars in millions, except per share amounts) 2006� � 2005� � Assets Cash and due from banks $ 2,368� $ 2,684� Interest-bearing deposits with banks 5,236� 11,275� Securities purchased under resale agreements 14,678� 8,679� Trading account assets 785� 764� Investment securities available for sale 60,445� 54,979� Investment securities held to maturity 4,547� 4,891� Loans and leases (net of allowance of $18) 8,928� 6,464� Premises and equipment 1,560� 1,453� Accrued income receivable 1,617� 1,364� Goodwill 1,384� 1,337� Other intangible assets 434� 459� Other assets � 5,371� � 3,619� Total assets $ 107,353� $ 97,968� � Liabilities Deposits: Noninterest-bearing $ 10,194� $ 9,402� Interest-bearing -- U.S. 1,272� 2,379� Interest-bearing -- Non-U.S. � 54,180� � 47,865� Total deposits 65,646� 59,646� � Securities sold under repurchase agreements 19,147� 20,895� Federal funds purchased 2,147� 1,204� Other short-term borrowings 2,835� 1,219� Accrued taxes and other expenses 3,162� 2,632� Other liabilities 4,567� 3,346� Long-term debt � 2,616� � 2,659� Total liabilities 100,120� 91,601� � 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 and 337,126,000 shares 337� 337� Surplus 399� 266� Retained earnings 7,011� 6,189� Accumulated other comprehensive loss (224) (231) Treasury stock (at cost 4,688,000 and 3,501,000 shares) � (290) � (194) Total shareholders\' equity � 7,233� � 6,367� Total liabilities and shareholders' equity $ 107,353� $ 97,968�