State Street Corporation announced today third-quarter 2008
earnings per share of $1.09, an increase from $0.91 per share in
the third quarter of 2007. Earnings per share in the third quarter
include a $0.48 per share gain on the July 2008 sale of CitiStreet,
$0.01 per share from acting as an intermediary under the Federal
Reserve Bank�s Asset-Backed Commercial Paper Money Market Liquidity
Facility (�AMLF�), a $(0.31) per share charge related to an
increase in our reserve for sale-in, lease-out transactions
(�SILOs�), a $(0.28) per share charge to establish a reserve to
address our estimated net exposure on an indemnification obligation
associated with collateral repurchase agreements with Lehman
Brothers (�Lehman�), and $(0.05) per share in merger and
integration costs associated with the July 2, 2007, acquisition of
Investors Financial Services Corp. (�Investors Financial�).
Operating-basis results are reported excluding these items.
Earnings per share in the third quarter of 2007 include $(0.24) per
share of merger and integration costs. On an operating basis,
earnings in the third quarter of 2008 are $1.24 per share, up 8%
from $1.15 per share in the third quarter of 2007. Revenue of
$2.771 billion in the third quarter of 2008 is up 24%, compared to
$2.240 billion in the year-ago quarter. Excluding the $350 million
gain we recognized on the sale of CitiStreet, $8 million in net
interest revenue from the AMLF, and $(98) million for a reduction
of net interest revenue related to SILO lease transactions,
operating revenue is $2.536 billion, up 12.4% from $2.257 billion
in last year�s third quarter. Total expenses in the third quarter
of 2008 are $1.925 billion, up 14% from $1.689 billion in the third
quarter of 2007. Excluding the $200 million reserve associated with
our estimated net exposure on an indemnification obligation
relating to collateralized repurchase agreements with Lehman, and
merger and integration costs of $30 million in the third quarter of
2008 and $141 million in the third quarter of 2007 associated with
the Investors Financial acquisition, expenses on an operating basis
are $1.695 billion, up 9.5%, or $147 million, compared to $1.548
billion in the year-ago quarter. On an operating basis, State
Street generated about 290 basis points of positive operating
leverage. For the third quarter of 2008, return on shareholders�
equity is 13.6%, compared to 12.6% in the third quarter of 2007.
The return on shareholders� equity reflects the impact of the
equity capital issuance in June 2008, as well as the non-operating
items listed above. Excluding the non-operating items, operating
return on equity is 15.4% in the third quarter of 2008 compared to
15.8% in the third quarter of 2007. Ronald E. Logue, State Street's
chairman and chief executive officer, said, �We are pleased to be
one of the nine financial institutions key to the infrastructure of
the global financial markets, selected by the U.S. Treasury to
initiate the TARP Capital Purchase Program, a program aimed at
addressing the financial turmoil and restoring confidence in the
markets. Our selection demonstrates the important role that State
Street plays for its customers and in the global markets and
reflects our core financial strengths. Although we have always been
and remain well capitalized, the program adds additional capital
and affords us additional flexibility to continue our leadership
role in meeting the challenges and opportunities in current
markets. It�s my belief that the companies that will emerge from
this turmoil are those, like State Street, with the right mix of
businesses, a focus on customer service, and a prudent plan for
this environment. As part of this program, State Street will issue
$2 billion of senior preferred shares to the U.S. Treasury along
with warrants to purchase common stock with a total market price
equal to about $300 million at the time of issuance, which we
anticipate will be minimally dilutive to our shareholders.� He
continued, �In the third quarter, the volatility of both the equity
and fixed-income markets resulted in increased business for State
Street as customers sought us out because of our reputation for
stability and safety. Market events drove growth in our balance
sheet from $146 billion at June 30, 2008, to $286 billion at
quarter end. Our normalized balance sheet has grown to $155
billion, excluding a temporary balance of $77 billion due to the
AMLF and $54 billion in excess balances held at central banks,
which we believe reflect current market conditions. We bear no risk
or any capital assessment relative to the AMLF balances. We are
pleased to be a significant participant and one of the first banks
to be fully operational in the AMLF program of the Federal Reserve.
We are also pleased to have been appointed by the U.S. Treasury to
manage a portion of the assets for its mortgage-backed securities
portfolio.� Logue added, �The recently announced Commercial Paper
Funding Facility, that the Federal Reserve Bank has also appointed
us to service, will provide liquidity to the commercial paper
markets. In addition to its primary role in providing liquidity in
the commercial paper markets, we expect this program to provide an
additional source of liquidity for State Street�s asset-backed
commercial paper program in these disrupted markets with a
substantial amount of the program�s asset-backed commercial paper
qualifying for the program.� Logue noted, �Due to the unprecedented
market illiquidity in the third quarter, the unrealized after-tax
mark-to-market losses at quarter end on State Street�s investment
portfolio have increased to $3.3 billion and in the asset-backed
commercial paper conduits to $2.1 billion. However, as we have said
in the past, the asset quality of both our investment portfolio and
the conduit program remains high.� Speaking of the Company�s
secured exposure to Lehman Brothers, Logue said, �As we announced
on September 18, 2008, we have no unsecured exposure to Lehman.
However, we held mortgages as collateral for certain repurchase
agreements. Following the Lehman bankruptcy, we evaluated the
collateral securing our obligations in light of current market
conditions and established a reserve of $200 million to address our
estimated net exposure on indemnification obligations relating to
these agreements.� Addressing the future outlook, Logue concluded,
�Due to our strong performance in the first nine months of 2008, we
continue to confirm our earlier statements regarding our
performance to our financial goals for 2008. We continue to expect
our growth in operating earnings per share to be approaching the
high end of the 10 to 15 percent range; growth in operating revenue
to be above the high end of the 14 to 17 percent range and our
operating return on equity to approach the high end of the 14 to 17
percent range.� As State Street has previously disclosed, the
market value of the portfolios that State Street Global Advisors
manages in accounts that have entered into contracts with
third-party financial institutional guarantors, continues to be
under pressure, reflecting the illiquidity in the fixed-income
markets. While State Street is not contractually obligated to do
so, the Company is evaluating various options including providing
some form of support to these accounts. This decision could result
in a pre-tax charge of between $400 and $450 million in the fourth
quarter. State Street is still reviewing this issue and has not yet
determined what action, if any, to take. Following are two tables
that display specified reported-basis and operating-basis results
for legacy State Street as well as for its Investors Financial
business. The first table presents results reported in accordance
with U.S. generally accepted accounting principles (GAAP) and the
effects of the non-operating items excluded from operating-basis
results. The second table describes the results in four categories:
�Baseline,� �Investors Financial,� �Operating,� and �Reported.�
Management presents results on an operating basis in order to
provide financial information that is comparable from period to
period and to present comparable financial trends with respect to
our ongoing business operations. Management believes such
presentation facilitates an investor�s understanding and analysis
of our underlying performance and trends in addition to financial
information prepared in accordance with GAAP. In addition,
management believes that providing separate Investors Financial
results and baseline financial information further assists
investors and analysts in understanding the effect of that
acquisition. $ in millions except per share data � For the three
months ended � � For the three months ended September 30, 2008 � �
September 30, 2007 � � Operatinga � Reportedb � Operatingc �
Reportedb Fee revenue � $1,899 � $1,899 � $1,799 � $1,799 Net
interest revenue from operations � 615 � 615 � 464 � 464
Taxable-equivalent adjustment � 25 � 0 � 17 � 0 Net interest
revenue from AMLF � 0 � 8 � 0 � 0 SILO-related reduction in net
interest revenue � 0 � (98) � 0 � 0 Total net interest revenue �
640 � 525 � 481 � 464 Gains (losses) related to investment
securities, net � (3) � (3) � (23) � (23) Gain on sale of
CitiStreet interest � 0 � 350 � 0 � 0 Total revenue � 2,536 � 2,771
� 2,257 � 2,240 Operating expenses � 1,695 � 1,695 � 1,548 � 1,548
Merger and integration costs � 0 � 30 � 0 � 141 Provision for
Lehman reserve � 0 � 200 � 0 � 0 Total operating expenses � 1,695 �
1,925 � 1,548 � 1,689 Income before income tax expense � 841 � 846
� 709 � 551 Income tax expense from operations � 278 � 278 � 243 �
243 Taxable-equivalent adjustment � 25 � 0 � 17 � 0 Income tax
expense on non-operating items � 0 � 52 � 0 � (50) SILO-related
charge increasing income tax expense � 0 � 39 � 0 � 0 Total income
tax expense � 303 � 369 � 260 � 193 Net income � $538 � $477 � $449
� $358 Diluted earnings per share � $1.24 � $1.09 � $1.15 � $0.91 a
�Operating� results in the third quarter of 2008 are reported
results, excluding the impact of the CitiStreet gain, the AMLF
revenue, recording an additional charge associated with SILO
leasing transactions, the impact of the reserve associated with the
secured exposure to Lehman Brothers, and merger and integration
costs associated with the acquisition of Investors Financial; and
are presented on a fully taxable-equivalent basis. b �Reported�
results are in accordance with U.S. generally accepted accounting
principles (GAAP). C �Operating� results in the third quarter of
2007 exclude merger and integration costs associated with the
acquisition of Investors Financial and are presented on a fully
taxable-equivalent basis. $ in millions except per share data For
the three months ended � � September 30, 2008 � September 30, 2007
� � Baseline (a) � Investors Financial (b) � Operating (c) �
Reported (d) � Reported (d) Fee revenue � $1,731 � $168 � $1,899 �
$1,899 � $1,799 All other revenue � 575 � 62 � 637 � 872 � 441
Total revenue � 2,306 � 230 � 2,536 � 2,771 � 2,240 Total expenses
� 1,550 � 145 � 1,695 � 1,925 � 1,689 Income tax expense � 264 � 39
� 303 � 369 � 193 Net income � $492 � $46 � $538 � $477 � $358
Diluted EPS � $1.22 � $0.02 � $1.24 � $1.09 � $0.91 (a) �Baseline�
results represent results of legacy State Street on an operating
basis excluding the Investors Financial results described below and
are presented on a fully taxable-equivalent basis. (b) �Investors
Financial� results represent revenue and expenses, including
financing costs and amortization of intangibles, attributable to
the Investors Financial business acquired on July 2, 2007, but
excluding merger and integration costs. Presented on a fully
taxable-equivalent basis. Per-share amounts reflect the impact on
outstanding shares from the issuance of approximately 61 million
shares for the acquisition. (c) �Operating� results are reported
results, excluding the impact of the CitiStreet gain, the AMLF
revenue, recording an additional charge associated with SILO
leasing transactions, the impact of the reserve associated with the
secured exposure to Lehman Brothers, and merger and integration
costs associated with the acquisition of Investors Financial and
are presented on a fully taxable-equivalent basis. (d) �Reported�
results are in accordance with GAAP. THIRD-QUARTER RESULTS VS.
YEAR-AGO QUARTER Total operating revenue increased 12.4% compared
to the third quarter of 2007. Total operating expenses grew 9.5% to
$1.7 billion. Servicing fees are up 3%, to $966 million from $937
million in last year�s third quarter. The increase is attributable
to business from new and existing customers, offset partially by
lower average equity market valuations. Total assets under custody
are $14.045 trillion at September 30, 2008, down 7%, compared with
$15.148 trillion at September 30, 2007. Daily average values for
the S&P 500 Index are down 16%, for the MSCI� EAFE IndexSM are
down 19%, and for the NASDAQ are down 12% during the third quarter
of 2008 from the year-ago quarter. Investment management fees,
generated by State Street Global Advisors, are $261 million, down
13% from $299 million in last year�s third quarter. Management fees
reflect the impact of lower average month-end equity valuations and
lower performance fees. Total assets under management are $1.686
trillion at September 30, 2008, down 16%, compared to $1.998
trillion at September 30, 2007. Trading services revenue, which
includes foreign exchange trading revenue and brokerage and other
fees, is $363 million for the quarter, up 13% from $320 million a
year ago, itself an unusually strong quarter. The increase is
driven by higher FX volatility, especially at the end of the
quarter, and higher revenue from brokerage and other fees.
Securities finance revenue is $246 million in the quarter, up 49%
compared to $165 million in the year-ago quarter, reflecting an
improvement in spreads, partially offset by lower volumes.
Processing fees and other revenue declined 19% at $63 million,
compared to $78 million a year ago due to lower fees and lower
contributions from joint ventures. Operating net interest revenue
on a fully taxable-equivalent basis, is $640 million, an increase
of $159 million, or 33% from $481 million a year ago. The increase
in net interest revenue is due to lower funding costs as a result
of the reductions in the Fed Funds rate in the first and second
quarters, as well as a larger balance sheet. Net interest margin
increased to 2.22% from 1.73% a year ago. During the quarter, the
Company recorded $29 million in other-than-temporary impairment
charges on five investment securities, offset partially by $26
million in security gains. Total expenses in the third quarter are
$1.925 billion, up 14% compared to $1.689 billion in the year-ago
quarter. Total operating expenses in the third quarter of 2008
increased from $1.548 billion to $1.695 billion, up $147 million,
or 9.5%, from the year-ago quarter. On an operating basis, the
Company achieved 290 basis points of positive operating leverage in
the third quarter of 2008 compared to the third quarter of 2007.
Salaries and benefits expenses are up 12% to $1.0 billion,
primarily attributable to increases in headcount due to new
business and higher benefits costs. Transaction processing expenses
in the third quarter of $165 million were flat compared to the
year-ago quarter. Expenses for information systems and
communications increased $6 million, or 4%, to $151 million due to
new product development. Occupancy expense increased 6% to $116
million due to costs associated with non-U.S. expansion. Other
expenses, excluding the Lehman charge, were up 13% at $241 million
due primarily to increased professional fees. On a reported basis
the tax rate is 43.5% for the quarter, compared with 35.0% in the
third quarter of 2007, and on an operating basis is 34.0%, compared
with 35.0% in the third quarter of last year. RESULTS OF THE THIRD
QUARTER OF 2008 VS. THE SECOND QUARTER OF 2008 Third-quarter
earnings per share of $1.09 compares to earnings per share of $1.35
per share in the second quarter. Second quarter earnings per share
include $0.05 of after-tax merger and integration costs associated
with the acquisition of Investors Financial. Operating earnings per
share in the third quarter are $1.24, down 11.4% from $1.40 in the
second quarter of 2008. Total revenue on an operating basis in the
third quarter is $2.536 billion, down 6.1% from the second quarter.
Total expenses on an operating basis are $1.695 billion, down 6.3%,
or $114 million, versus $1.809 billion in the second quarter. On an
operating basis, the Company achieved 20 basis points of positive
operating leverage. For the third quarter of 2008, return on
shareholders� equity is 13.6% compared to 18.6% in the second
quarter and is 15.4% excluding non-operating items compared to
19.3% on an operating basis in the second quarter. Servicing fees
are down 1% at $966 million due to the lower daily average equity
valuations, partially offset by business from existing and new
customers. Management fees are down 7% at $261 million principally
due to lower daily average equity valuations, offset partially by
higher performance fees. Trading services revenue increased 13% to
$363 million due to higher volatility near the end of the quarter
and higher equity trading volumes. Securities finance revenue was
down 30%, or $106 million, at $246 million, due to lower spreads
and less demand, compared to a seasonally high second quarter.
Processing fees and other decreased from $77 million to $63
million. Operating net interest revenue on a fully
taxable-equivalent basis, was down 7% at $640 million, compared to
the second quarter, due primarily to lower investment yields on
assets and a decline in revenue from non-U.S. transaction deposits.
On an operating basis, expenses declined 6% compared to the second
quarter. Salaries and employee benefits expenses total $1.022
billion, a decrease of $38 million, or 4%, from $1.060 billion in
the second quarter, attributable primarily to lower incentive
compensation. Transaction processing services expense decreased $7
million, or 4%, to $165 million due to lower valuations.
Information systems and communication expense was down 8%, or $13
million, to $151 million due to lower infrastructure spending, and
occupancy expense was about flat at $116 million. Other expenses
are down $57 million, or 19%, from $298 million to $241 million due
primarily to reductions in professional fees, lower costs in bank
operations, and lower securities processing costs. ADDITIONAL
INFORMATION All per share amounts represent diluted earnings per
share. INVESTOR CONFERENCE CALL State Street will webcast an
investor conference call today, Wednesday, October 15, 2008, at
7:30 a.m. EDT, available at www.statestreet.com/stockholder. The
conference call will also be available via telephone, at +1
706/679-5594 (Conference ID# 61961747). Recorded replays of the
conference call will be available on the web site, and by telephone
at +1 706/645-9291(Conference ID# 61961747), beginning
approximately two hours after the call�s completion. The telephone
replay will be available for two weeks following the conference
call. This press release, presentation materials to be referred to
on the conference call and additional financial information are
available on State Street�s website, at
www.statestreet.com/stockholder, under �Investor Information�Latest
News,� �Annual Reports and Financial Trends�Financial Trends� and
��Investor Events and Presentations.� State Street Corporation
(NYSE: STT) is the world's leading provider of financial services
to institutional investors, including investment servicing,
investment management and investment research and trading. With
$14.0 trillion in assets under custody and $1.7 trillion in assets
under management at September 30, 2008, State Street operates in 26
countries and more than 100 geographic markets worldwide and
employs 28,950 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. FORWARD-LOOKING STATEMENTS This news
announcement contains forward-looking statements as defined by
United States securities laws, including statements about State
Street�s goals and expectations regarding its business, financial
condition, results of operations and strategies, the financial and
market outlook, governmental and regulatory initiatives and
developments and the business environment. These statements are not
guarantees of future performance, are inherently uncertain, are
based on current assumptions that are difficult to predict and
involve a number of risks and uncertainties. Therefore, actual
outcomes and results may differ materially from what is expressed
in those statements, and those statements should not be relied upon
as representing State Street's expectations or beliefs as of any
date subsequent to the date of this release. Important factors that
may affect future results and outcomes include: the financial
strength of the counterparties with which State Street or its
clients does business and with whom State Street has investment or
financial exposure; the liquidity of the U.S. and International
securities markets, particularly the markets for fixed-income
securities, and the liquidity requirements of State Street�s
customers; potential changes to the competitive environment due to
the effects of consolidation, regulation and perceptions of State
Street as a suitable service provider or counterparty; the level
and volatility of interest rates, particularly in the U.S., Europe
and the Asia/Pacific region; the performance and volatility of
securities, credit, currency and other markets in the U.S. and
internationally; economic conditions and monetary and other
governmental actions designed to address the level and volatility
of interest rates and the volatility of securities, currency and
other markets in the U.S. and internationally; State Street�s
ability to measure the fair value of securities in its investment
securities portfolio and in the asset-backed commercial paper
conduits it sponsors, particularly given current market conditions
for many of those securities; the credit quality and credit agency
ratings of the securities in State Street�s investment securities
portfolio, a deterioration or downgrade of which could lead to
other-than-temporary impairment of the respective securities and
the recognition of an impairment loss, the maintenance of the
credit agency ratings for State Street�s own debt obligations as
well as the level of credibility of credit agency ratings; State
Street's ability to attract non-interest bearing deposits and other
low-cost funds; the possibility that changes to accounting rules or
in market conditions or asset performance may require any
off-balance sheet activities, including State Street�s asset-backed
commercial paper conduits, to be consolidated into State Street�s
financial statements, requiring recognition of associated losses,
if any; the results of litigation and similar disputes and, in
particular, the effect that current or potential litigation may
have on its reputation and that of State Street Global Advisors
(�SSgA�) and State Street�s ability to attract and retain
customers; the possibility that the ultimate costs of the legal
exposure associated with certain of SSgA�s actively managed
fixed-income strategies may exceed or be below the level of the
related reserve, in view of the uncertainties of the timing and
outcome of litigation, and the amounts involved; the possibility of
further developments of the nature that previously gave rise to the
legal exposure associated with certain of SSgA�s actively managed
fixed-income and other investment strategies; State Street's
ability to integrate acquisitions into its business, including the
acquisition of Investors Financial; the performance and demand for
the products and services State Street offers, including the level
and timing of withdrawals from our collective investment products;
the enactment of legislation and changes in regulation and
enforcement that impact State Street and its customers, as well as
the effects of legal and regulatory proceedings, including
litigation; State Street's ability to continue to grow revenue,
control expenses and attract the capital necessary to achieve its
business goals and comply with regulatory requirements; State
Street's ability to navigate systemic risks and control operating
risks; State Street�s ability to obtain quality and timely services
from third parties with which it contracts; trends in the
globalization of investment activity and the growth on a worldwide
basis in financial assets and the resulting sovereign and monetary
policy risks; trends in governmental and corporate pension plans
and savings rates; changes in accounting standards and practices,
including changes in the interpretation of existing standards, that
impact State Street's consolidated financial statements; and
changes in tax legislation and in the interpretation of existing
tax laws by U.S. and non-U.S. tax authorities that impact the
amount of taxes due. 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 2007
Annual Report on Form 10-K and its subsequent SEC filings,
including, in particular, its Current Report on Form 8-K dated
October 15, 2008. State Street encourages investors to read these
filings, particularly the sections on Risk Factors, 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, October 15, 2008, and
State Street does not undertake efforts to revise those
forward-looking statements to reflect events after this date. STATE
STREET CORPORATION Press Release Addendum � � Financial Highlights
September 30, 2008 � � Quarters Ended � � % Change Q3 2008 Q3 2008
(Dollars in millions, except per share amounts September 30, June
30, September 30, vs. vs. or where otherwise noted) � � 2008 � �
2008 � � 2007 � � Q2 2008 � � Q3 2007 � � Total Revenue (1) $ 2,771
$ 2,672 $ 2,240 4 % 24 % Total Expenses (2)(3) 1,925 1,841 1,689 5
14 Net Income 477 548 358 (13) 33 � Diluted Earnings Per Share (4)
$ 1.09 $ 1.35 $ .91 (19) 20 � Cash Dividends Declared Per Share $
.24 $ .24 $ .22 Closing Price Per Share of Common Stock (at quarter
end) 56.88 63.99 68.16 � Return on Equity 13.6 % 18.6 % 12.6 % � At
Quarter End: Assets Under Custody (AUC) (in trillions) $ 14.05 $
15.26 $ 15.15 Assets Under Management (AUM) (in trillions) 1.69
1.89 2.00 � Nine Months Ended � � % Change 2008 September 30,
September 30, vs. (Dollars in millions, except per share amounts) �
� 2008 � � 2007(5) � � 2007 � Total Revenue (1) $ 8,020 $ 5,857 37
% � Total Expenses (2)(6) 5,540 4,260 30 Income Tax Expense 925 559
65 Net Income 1,555 1,038 50 � Diluted Earnings Per Share (4) 3.78
2.91 30 � Cash Dividends Declared Per Share .71 .65 9 � Return on
Equity 16.8 % � 15.9 % � � (1) Quarter and nine months ended
September 30, 2008 include $350 million gain from sale of
CitiStreet interest, net of exit and other associated costs. (2)
Quarter and nine months ended September 30, 2008 include $200
million provision for potential secured exposure associated with
collateralized repurchase agreements. (3) Quarters ended September
30, 2008, June 30, 2008 and September 30, 2007 include merger and
integration costs of $30 million, $32 million and $141 million,
respectively, recorded in connection with the acquisition of
Investors Financial. (4) Quarter and nine months ended September
30, 2008 and quarter ended June 30, 2008 reflect the impact of the
issuance of 40.5 million shares of common stock on June 3, 2008 in
a public offering. (5) Nine months ended September 30, 2007 include
results of Investors Financial business for the quarter ended
September 30, 2007. (6) Nine months ended September 30, 2008 and
September 30, 2007 include merger and integration costs of $88
million and $141 million, respectively, recorded in connection with
the acquisition of Investors Financial. STATE STREET CORPORATION
Press Release Addendum � SELECTED FINANCIAL INFORMATION Quarters
and Nine Months Ended September 30, 2008 and September 30, 2007 � �
� Quarters Ended � Nine Months Ended September 30, � September 30,
� September 30, � September 30, � (Dollars in millions, except per
share amounts) � 2008 � 2007 % Change � 2008 � 2007(1) % Change �
Fee Revenue: Servicing fees $ 966 $ 937 3 % $ 2,903 $ 2,421 20%
Management fees 261 299 (13) 819 844 (3) Trading services 363 320
13 1,049 800 31 Securities finance 246 165 49 901 425 112
Processing fees and other � 63 � 78 (19) � 194 � 216 (10) Total fee
revenue 1,899 1,799 6 5,866 4,706 25 � Net Interest Revenue:
Interest revenue 1,027 1,383 (26) 3,452 3,758 (8) Interest expense
� 502 � 919 (45) � 1,645 � 2,584 (36) Net interest revenue (2) 525
464 13 1,807 1,174 54 Provision for loan losses � - � - � - � - Net
interest revenue after provision for loan losses 525 464 13 1,807
1,174 54 � Losses relatedto inves-tment secur-ities, net (3) (23)
(3) (23) Gain from sale of CitiStreet interest, net of exit and
other associated costs � 350 � - � 350 � - Total revenue 2,771
2,240 23.7 8,020 5,857 36.9 � Operating Expenses: Salaries and
employee benefits 1,022 916 12 3,144 2,463 28 Infor-mation systems
and communi-cations 151 145 4 470 398 18 Transaction processing
services 165 165 - 499 435 15 Occupancy 116 109 6 341 301 13 Merger
and inte-gration costs 30 141 88 141 Other � 441 � 213 107 � 998 �
522 91 Total operating expenses � 1,925 � 1,689 14.0 � 5,540 �
4,260 30.0 Income before income tax expense 846 551 54 2,480 1,597
55 Income tax expense � 369 � 193 � 925 � 559 Net income $ 477 $
358 33 $ 1,555 $ 1,038 50 � Earnings Per Share: Basic $ 1.11 $ .92
21 $ 3.82 $ 2.95 29 Diluted 1.09 .91 20 3.78 2.91 30 � Average
Shares Out-standing (in thou-sands): Basic 430,872 386,843 407,186
352,410 Diluted 435,030 392,150 411,204 356,695 � Consolidated
Selected Financial Information presented above was prepared in
accordance with accounting principles generally accepted in the
United States. � (1) Nine months ended September 30, 2007 include
financial results of Investors Financial business for the quarter
ended September 30, 2007. (2) Net interest revenue on a fully
taxable-equivalent basis was $640 million and $481 million for the
quarters ended September 30, 2008 and 2007, respectively, and $1.97
billion and $1.22 billion for the nine months ended September 30,
2008 and 2007, respectively. These amounts include
taxable-equivalent adjustments of $25 million and $17 million for
the quarters ended September 30, 2008 and 2007, respectively, and
$76 million and $41 million for the nine months ended September 30,
2008 and 2007, respectively. STATE STREET CORPORATION Press Release
Addendum � SELECTED FINANCIAL INFORMATION Quarters Ended September
30, 2008 and June 30, 2008 � � � � Quarters Ended September 30,
June 30, (Dollars in millions, except per share amounts) � 2008 � �
2008 � % Change � � Fee Revenue: Servicing fees $ 966 $ 977 (1) %
Management fees 261 280 (7) Trading services 363 320 13 Securities
finance 246 352 (30) Processing fees and other � 63 � 77 (18) Total
fee revenue 1,899 2,006 (5) � Net Interest Revenue: Interest
revenue 1,027 1,137 (10) Interest expense � 502 � 480 5 Net
interest revenue (1) 525 657 (20) Provision for loan losses � - � -
Net interest revenue after provision for loan losses 525 657 (20) �
Gains (Losses) related to investment securities, net (3) 9 Gain
from sale of CitiStreet interest, net of exit and other associated
costs � 350 � - Total revenue 2,771 2,672 3.7 � Operating Expenses:
Salaries and employee benefits 1,022 1,060 (4) Information systems
and communications 151 164 (8) Transaction processing services 165
172 (4) Occupancy 116 115 1 Merger and integration costs 30 32 (6)
Other � 441 � 298 48 Total operating expenses � 1,925 � 1,841 4.6
Income before income tax expense 846 831 2 Income tax expense � 369
� 283 Net income $ 477 $ 548 (13) � Earnings Per Share: Basic $
1.11 $ 1.36 (18) Diluted 1.09 1.35 (19) � Average Shares
Outstanding (in thousands): Basic 430,872 402,482 Diluted 435,030
406,964 � Consolidated Selected Financial Information presented
above was prepared in accordance with accounting principles
generally accepted in the United States. � (1) Net interest revenue
on a fully taxable-equivalent basis was $640 million and $685
million for the quarters ended September 30, 2008 and June 30,
2008, respectively. These amounts include taxable-equivalent
adjustments of $25 million and $28 million. STATE STREET
CORPORATION Press Release Addendum � SELECTED OPERATING-BASIS
FINANCIAL INFORMATION Quarters and Nine Months Ended September 30,
2008 and September 30, 2007 � � � Quarters Ended (1) � Nine Months
Ended (1) September 30, 2008 September 30, 2007 September 30, 2008
September 30, 2007 (Dollars in mill-ions, except pershare amounts)
� � % Change � % Change � Fee Revenue: Servicing fees $ 966 $ 937 3
% $ 2,903 $ 2,421 20 % Manag-ement fees 261 299 (13) 819 844 (3)
Trading services 363 320 13 1,049 800 31 Secur-ities finance 246
165 49 901 425 112 Proc-essing feesand other � 63 � 78 (19) � 194 �
216 (10) Total fee revenue 1,899 1,799 6 5,866 4,706 25 � Net
Interest Revenue: Interest revenue, oper-ating basis 1,105 1,400
(21) 3,581 3,799 (6) Interest expense � 465 � 919 (49) � 1,608 �
2,584 (38) Net interest revenue, oper-ating basis 640 481 33 1,973
1,215 62 Provision for loan losses � - � - � - � - Net interest
revenue after pro-vision for loan losses, oper-ating basis 640 481
1,973 1,215 62 � Losses related to inves-tment secur-ities, net �
(3) � (23) � (3) � (23) Total revenue, oper-ating basis (2)(3)
2,536 2,257 12.4 7,836 5,898 32.9 � Oper-ating Exp-enses: Salaries
and employee benefits 1,022 916 12 3,144 2,463 28 Inform-ation
systems and communi-cations 151 145 4 470 398 18 Trans-action
proc-essing services 165 165 - 499 435 15 Occupancy 116 109 6 341
301 13 Other � 241 � 213 13 � 798 � 522 53 Total oper-ating
exp-enses, oper-ating basis (2)(3) � 1,695 � 1,548 9.5 � 5,252 �
4,119 27.5 Income before income tax expense, oper-ating basis 841
709 19 2,584 1,779 45 Income taxes, oper-ating basis 278 243 853
609 Taxable-equiv-alent adjus-tment � 25 � 17 � 76 � 41 Net income,
oper-ating basis $ 538 $ 449 20 $ 1,655 $ 1,129 47 � � Diluted
earn-ings per share, oper-ating basis $ 1.24 $ 1.15 8 $ 4.03 $ 3.15
28 � Average diluted shares outst-anding (in thous-ands) 435,030
392,150 411,204 356,695 � Return on equity, oper-ating basis 15.4 %
15.8 % 17.8 % 17.3 % � � (1) Refer to the accompanying
reconciliation of reported results to operating-basis results. (2)
For the quarter ended September 30, 2008, positive operating
leverage in the year-over-year comparison was 290 basis points,
based on growth in total operating-basis revenue of 12.4% and
growth in total operating-basis expenses of 9.5%. (3) For the nine
months ended September 30, 2008, positive operating leverage in the
year-over-year comparison was 540 basis points, based on growth in
total operating-basis revenue of 32.9% and growth in total
operating-basis expenses of 27.5%. STATE STREET CORPORATION Press
Release Addendum � SELECTED OPERATING-BASIS FINANCIAL INFORMATION
Quarters Ended September 30, 2008 and June 30, 2008 � � � Quarters
Ended (1) September 30, June 30, (Dollars in millions, except per
share amounts) 2008 � 2008 � % Change � � Fee Revenue: Servicing
fees $ 966 $ 977 (1) % Management fees 261 280 (7) Trading services
363 320 13 Securities finance 246 352 (30) Processing fees and
other � 63 � 77 (18) Total fee revenue 1,899 2,006 (5) � Net
Interest Revenue: Interest revenue, operating basis 1,105 1,165 (5)
Interest expense � 465 � 480 (3) Net interest revenue, operating
basis 640 685 (7) Provision for loan losses � - � - Net interest
revenue after provision for loan losses, operating basis 640 685
(7) � Gains (Losses) related to investment securities, net � (3) �
9 Total revenue, operating basis (2) 2,536 2,700 (6.1) � Operating
Expenses: Salaries and employee benefits 1,022 1,060 (4)
Information systems and communications 151 164 (8) Transaction
processing services 165 172 (4) Occupancy 116 115 1 Other,
operating basis � 241 � 298 (19) Total operating expenses,
operating basis (2) � 1,695 � 1,809 (6.3) Income before income tax
expense, operating basis 841 891 (6) Income taxes 278 293
Taxable-equivalent adjustment � 25 � 28 Net income, operating basis
$ 538 $ 570 (6) � � Diluted earnings per share, operating basis $
1.24 $ 1.40 (11.4) � Average diluted shares outstanding (in
thousands) 435,030 406,964 � Return on equity, operating basis 15.4
% 19.3 % � � (1) Refer to the accompanying reconciliation of
reported results to operating-basis results. (2) For the quarter
ended September 30, 2008, positive operating leverage in the
quarter-over-quarter comparison was 20 basis points, based on
decline in total operating-basis revenue of 6.1% and decline in
total operating-basis expenses of 6.3%. STATE STREET CORPORATION
Press Release Addendum � RECONCILIATION OF REPORTED RESULTS TO
OPERATING-BASIS RESULTS Quarter and Nine Months Ended September 30,
2008 � � � � � � � � � � � � � � � � � � � � (Dollars in millions,
except per share amounts) Quarter Ended September 30, 2008 Nine
Months Ended September 30, 2008 � � � Reported Operating Reported
Operating Results Adjust-ments Results � Results Adjust-ments
Results Fee Revenue: Servicing fees $ 966 $ 966 $ 2,903 $ 2,903
Management fees 261 261 819 819 Trading services 363 363 1,049
1,049 Securities finance 246 246 901 901 Processing fees and other
� 63 � 63 � 194 � 194 Total fee revenue 1,899 1,899 5,866 5,866 �
Net Interest Revenue: Interest revenue 1,027 $ 78 (1) 1,105 3,452 $
129 (1) 3,581 Interest expense � 502 � (37) (2) 465 � 1,645 � (37)
(2) 1,608 Net interest revenue 525 115 640 1,807 166 1,973
Provision for loan losses � - � - � - � - � - � - Net interest
revenue after provision for loan losses 525 115 640 1,807 166 1,973
� Losses related to investment securities, net (3) - (3) (3) - (3)
Gain from sale of CitiStreet interest, net of exit and other
associated costs � � 350 � (350) (3) - � 350 � (350) (3) - Total
revenue 2,771 (235) 2,536 8,020 (184) 7,836 � Operating Expenses:
Salaries and employee benefits 1,022 - 1,022 3,144 - 3,144
Infor-mation systems and communi-cations 151 - 151 470 - 470
Transaction processing services 165 - 165 499 - 499 Occupancy 116 -
116 341 - 341 Merger and integration costs 30 (30) (4) - 88 (88)
(4) - Other � 441 � (200) (5) 241 � 998 � (200) (5) 798 Total
operating expenses � 1,925 � (230) � 1,695 � 5,540 � (288) � 5,252
Income before income taxes 846 (5) 841 2,480 104 2,584 Income taxes
369 (91) (6) 278 925 (72) (7) 853 Taxable-equivalent adjustment � -
� 25 (8) 25 � - � 76 (8) 76 Net income $ 477 $ 61 $ 538 $ 1,555 $
100 $ 1,655 � Diluted earnings per share $ 1.09 $ .15 $ 1.24 $ 3.78
$ .25 $ 4.03 � Average diluted shares outstanding (in thousands)
435,030 435,030 435,030 411,204 411,204 411,204 � Return on equity
13.6 % 1.8 % 15.4 % 16.8 % 1.0 % 17.8 % � � Reported results
reflect State Street's Consolidated Statement of Income prepared in
accordance with accounting principles generally accepted in the
United States. � (1) Represents taxable-equivalent adjustment of
$25 million for the quarter ended September 30, 2008 and $76
million for the nine months ended September 30, 2008, which are not
included in reported results, plus a $98 million charge associated
with SILO leasing transactions, net of $45 million of revenue
related to the Boston Federal Reserve Bank's Asset-Backed
Commercial Paper Money Market Liquidity Facility (AMLF). (2)
Represents $37 million of interest expense related to the Boston
Federal Reserve Bank's AMLF. (3) Represents gain on the sale of
CitiStreet interest, net of exit and other associated costs, which
State Street divested on July 1, 2008. (4) Represents merger and
integration costs recorded in connection with the acquisition of
Investors Financial, which are direct and incremental costs
associated with the acquisition and do not include ongoing expenses
of the combined organization. (5) Represents a charge to provide
for estimated net exposure to customers on an indemnification
obligation associated with collateralized repurchase agreements.
(6) Represents $3 million of income tax expense related to the
Boston Federal Reserve Bank's AMLF, $39 million of income tax
expense related to the reserve for SILO's, $140 million of income
tax expense related to the gain from sale of CitiStreet interest,
$11 million of income tax benefit related to merger and integration
costs for the acquisition of Investors Financial, and $80 million
of income tax benefit related to the provision for potential
secured exposure associated with a collateralized repurchase
agreement. (7) Represents $3 million of income tax expense related
to the Boston Federal Reserve Bank's AMLF, $39 million of income
tax expense related to the reserve for SILO's, $140 million of
income tax expense related to the gain from sale of CitiStreet
interest, $30 million of income tax benefit related to merger and
integration costs for the acquisition of Investor's Financial, and
$80 million of income tax benefit related to the provision for
potential secured exposure associated with a collateralized
repurchase agreement. (8) Represents taxable-equivalent adjustment,
which is not included in reported results. STATE STREET CORPORATION
Press Release Addendum � RECONCILIATION OF REPORTED RESULTS TO
OPERATING-BASIS RESULTS Quarter and Nine Months Ended September 30,
2007 � � � � � � � � � � � � � � � � � � � � (Dollars in millions,
except per share amounts) Quarter Ended September 30, 2007 Nine
Months Ended September 30, 2007 � � � � Reported Oper-ating
Reported Oper-ating Results Adjust-ments � Results Results
Adjust-ments Results Fee Revenue: Servicing fees $ 937 $ 937 $
2,421 $ 2,421 Management fees 299 299 844 844 Trading services 320
320 800 800 Securities finance 165 165 425 425 Processing fees and
other � 78 � 78 � 216 � 216 Total fee revenue 1,799 1,799 4,706
4,706 � Net Interest Revenue: Interest revenue 1,383 $ 17 (1) 1,400
3,758 $ 41 (1) 3,799 Interest expense � 919 � - � 919 � 2,584 � - �
2,584 Net interest revenue 464 17 481 1,174 41 1,215 Provision for
loan losses � - � - � - � - � - � - Net interest revenue after
provision for loan losses 464 17 481 1,174 41 1,215 � Losses
related to inves-tment secur-ities, net � (23) � - � (23) � (23) �
- � (23) Total revenue 2,240 17 2,257 5,857 41 5,898 � Operating
Expenses: Salaries and employee benefits 916 - 916 2,463 - 2,463
Infor-mation systems and communi-cations 145 - 145 398 - 398
Trans-action proc-essing services 165 - 165 435 - 435 Occupancy 109
- 109 301 - 301 Merger and Integr-ation costs 141 (141) (2) - 141
(141) (2) - Other � 213 � - � 213 � 522 � - � 522 Total operating
expenses � 1,689 � (141) � 1,548 � 4,260 � (141) � 4,119 Income
before income taxes 551 158 709 1,597 182 1,779 Income taxes 193 50
(2) 243 559 50 (2) 609 Taxable-equivalent adjus-tment � - � 17 (1)
� 17 � - � 41 (1) � 41 Net income $ 358 $ 91 $ 449 $ 1,038 $ 91 $
1,129 � Diluted earnings per share $ .91 $ .24 $ 1.15 $ 2.91 $ .24
$ 3.15 � Average diluted shares outst-anding (in thou-sands)
392,150 392,150 392,150 356,695 356,695 356,695 � Return on equity
12.6 % 3.2 % 15.8 % 15.9 % 1.4 % 17.3 % � � Reported results
reflect State Street's Consolidated Statement of Income prepared in
accordance with accounting principles generally accepted in the
United States. � (1) Represents taxable-equivalent adjustment,
which is not included in reported results. (2) Represents merger
and integration costs recorded in connection with the acquisition
of Investors Financial, which are direct and incremental costs
associated with the acquisition and do not include ongoing expenses
of the combined organization. STATE STREET CORPORATION Press
Release Addendum � RECONCILIATION OF REPORTED RESULTS TO
OPERATING-BASIS RESULTS Quarter Ended June 30, 2008 � � � � � � � �
� � (Dollars in millions, except per share amounts) Quarter Ended
June 30, 2008 � � Reported Operating Results Adjustments Results
Fee Revenue: Servicing fees $ 977 $ 977 Management fees 280 280
Trading services 320 320 Securities finance 352 352 Processing fees
and other � 77 � 77 Total fee revenue 2,006 2,006 � Net Interest
Revenue: Interest revenue 1,137 $ 28 (1) 1,165 Interest expense �
480 � - � 480 Net interest revenue 657 28 685 Provision for loan
losses � - � - � - Net interest revenue after provision for loan
losses 657 28 685 � Gains related to investment securities, net � 9
� - � 9 Total revenue 2,672 28 2,700 � Operating Expenses: Salaries
and employee benefits 1,060 - 1,060 Information systems and
communications 164 - 164 Transaction processing services 172 - 172
Occupancy 115 - 115 Merger and integration costs 32 (32) (2) -
Other � 298 � - � 298 Total operating expenses � 1,841 � (32) �
1,809 Income before income taxes 831 60 891 Income taxes 283 10 (2)
293 Taxable-equivalent adjustment � - � 28 (1) � 28 Net income $
548 $ 22 $ 570 � Diluted earnings per share $ 1.35 $ .05 $ 1.40 �
Average diluted shares outstanding (in thousands) 406,964 406,964
406,964 � Return on equity 18.6 % 0.7 % 19.3 % � � Reported results
reflect State Street's Consolidated Statement of Income prepared in
accordance with accounting principles generally accepted in the
United States. � (1) Represents taxable-equivalent adjustment,
which is not included in reported results. (2) Represents merger
and integration costs recorded in connection with the acquisition
of Investors Financial, which are direct and incremental costs
associated with the acquisition and do not include ongoing expenses
of the combined organization. STATE STREET CORPORATION Press
Release Addendum � CONSOLIDATED STATEMENT OF CONDITION � � � � � �
� � � � � � � September 30, � December 31, � September 30, (Dollars
in millions, except per share amounts) � 2008 � 2007 � 2007 �
Assets Cash and due from banks $ 58,263 $ 4,733 $ 4,610
Interest-bearing deposits with banks 18,430 5,579 6,559 Securities
purchased under resale agreements 9,598 19,133 16,151 Federal funds
sold 1,500 4,540 2,575 Trading account assets 6,332 589 1,305
Investment securities available for sale 68,881 70,326 72,789
Investment securities held to maturity purchased under money market
liquidity facility 76,660 - - Investment securities held to
maturity 3,945 4,233 4,294 Loans and leases (net of allowance of
$18) 17,430 15,784 11,292 Premises and equipment 1,987 1,894 1,824
Accrued income receivable 1,915 2,096 1,883 Goodwill 4,516 4,567
4,601 Other intangible assets 1,890 1,990 1,994 Other assets �
14,217 � 7,079 � 10,011 Total assets $ 285,564 $ 142,543 $ 139,888
� Liabilities Deposits: Noninterest-bearing $ 70,033 $ 15,039 $
13,779 Interest-bearing -- U.S. 9,988 14,790 15,838
Interest-bearing -- Non-U.S. � 70,848 � 65,960 � 63,384 Total
deposits 150,869 95,789 93,001 � Securities sold under repurchase
agreements 17,274 14,646 14,008 Federal funds purchased 1,984 425
320 Short-term borrowings under money market liquidity facility
76,627 - - Other short-term borrowings 4,289 5,557 4,802 Accrued
taxes and other expenses 2,443 4,392 3,953 Other liabilities 14,908
6,799 8,938 Long-term debt � 4,106 � 3,636 � 3,616 Total
liabilities 272,500 131,244 128,638 � Shareholders' Equity
Preferred stock, no par: authorized 3,500,000; issued none Common
stock, $1 par: authorized 750,000,000 shares; issued 431,951,000,
398,366,000 and 398,370,000 shares 432 398 398 Surplus 6,793 4,630
4,616 Retained earnings 9,002 7,745 7,610 Accumulated other
comprehensive loss (3,146) (575) (369) Treasury stock (at cost
405,000, 12,082,000 and 13,576,000 shares) � (17) � (899) � (1,005)
Total shareholders' equity � 13,064 � 11,299 � 11,250 Total
liabilities and shareholders' equity $ 285,564 $ 142,543 $ 139,888
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